Money managers' operating profits failed to follow an upward trend in global assets under management, as cost pressure and fee contraction continued to bite.
A report by Boston Consulting Group showed that, despite the effects of the COVID-19 pandemic, global AUM grew by 11% in 2020 to reach $103 trillion. Operating profits, however, remained stable at about 34% of net revenues.
BCG's 19th annual study found that costs as a share of AUM fell slightly to 15.7 basis points in 2020, from 16.6 basis points in 2019. Net revenues as a share of AUM also fell, to 23.7 basis points from 25.3 basis points a year before, keeping operating profits as a share of net revenues at 34%.
However, global net inflows grew, reaching $2.8 trillion in 2020 or 3.1% of total AUM at the start of 2020. That compared with a historical average of 1% to 2% for the previous decade.
A main driver of AUM growth was in the retail segment, with portfolios growing by 11% in 2020 and representing 41% of global assets at $42 trillion. Retail investors contributed 4.4% of net new capital last year.
Institutional investments also grew by about 11% to reach $61 trillion or 59% of overall AUM. Institutional investors also contributed 2.2% of net new capital in 2020, the report said.
North America remained the top region for money management AUM, which grew 12% to $48.6 trillion as of Dec. 31. Middle East and Africa AUM was up 12% to $1.4 trillion; Asia-Pacific ex-Japan assets were up 11% to $14 trillion; Japan and Australia AUM was up 11% to $8.5 trillion; European AUM was up 10% to $25.7 trillion; and Latin America assets were up 9% to $1.8 trillion.
Passive investments led market share, up 15.8% to $22 trillion, with BCG estimating 9% annualized growth for passive AUM over the next five years to reach $34 trillion.
However, passive investments represented just 6% of global revenue, at $21 billion of a total $331 billion, in 2020, the same percentage value as in 2019.
The report also showed that alternatives performed strongly, with AUM up 7.1% for the year to $15 trillion as of Dec. 31. The asset class represented the largest share of global revenue for managers in 2020, at 42% of $140 billion.
"The asset management industry is coming out of the global crisis with significant changes, especially in distribution," said Lubasha Heredia, a managing director and partner, and co-author of the report, in a news release accompanying the report. "These present challenges but also multiple opportunities for growth. The next big task for all industry players will be to carve out a suitable growth strategy as they refocus on the core areas of differentiation and advantage, which could be any combination of client engagement models, investment products, operating models or talent strategy."
