Profits generated by global asset managers will likely continue to decline for at least the next four years as investors shift more to lower-cost investment products like exchange-traded funds, according to the European Asset Management Study 2024 released on Oct. 21 by zeb Consulting, a German strategy and management consulting firm.
The study examined 40 global asset managers — including heavyweights BlackRock, State Street, Goldman Sachs, J.P. Morgan and Amundi — which have a European operation. These 40 firms saw their combined AUM jump by more than 50% from €28 trillion ($30.4 billion) at the end of 2019 to €42.2 trillion at the end of 2023, a compound annual growth rate of 8.8.%.
However, over that same time period, revenues at these firms grew by only 4.2% CAGR and profits stagnated, edging up only 0.7% CAGR. In fact, profits at these firms have actually declined from 10.1 basis points of assets under management in 2021 to 9.4 bps of AUM in 2022 to 8.2 bps of AUM in 2023.
Thus, despite rising AUM, profit margins at these firms are seeing a long-term decline. Moreover, AUM growth has largely been driven by market performance, zeb stated.
Zeb projects these trends will likely continue through at least 2028. “The fat years are over for the time being, driven by the return of bonds and the move away from highly profitable real estate,” the report said.
In a best case scenario, AUM will grow by 9.8% per annum through 2028; while in a worst case scenario, AUM will climb by 7.2% over that time frame. The base case envisions an 8.8% rise in AUM.
Profits could fall to 3.9 bps of AUM by the end of 2028 (in a worst case scenario), or they may increase to 9.1 bps of AUM (in the best case scenario). The base case projects a decline to 5.5 bps of AUM.
Meanwhile, in tandem with falling profits at asset management firms, low-cost ETF products continue to surge in popularity. Between 2019 and 2023, ETF AUM for the global industry doubled from €5.5 trillion to €10.3 trillion in just four years, zeb said in the report.
There has been a “strong development of assets under management in passive products,” the report noted, as well as an “increasing range of passive products from neo banks and fintech companies.” This demand was “driven in particular by private clients, as ETFs are ideal for savings plans and robo advisory.” Thematic ETFs, particularly in technology, clean energy and ESG, as well as bond ETFs, have enjoyed “growing popularity.”
Zeb suggests that profit margins could be improved if firms diversify more into alternative investments as they offer “historically higher returns than traditional asset classes,” while infrastructure and real estate assets offer “stable/regular income and protect against inflation.”
