North American asset management firms saw average assets under management rise in 2018, but industry profits fell during the year because of rising costs.
The overall environment for asset managers was challenging during the year, due in part to volatility establishing itself as a "near-constant fixture" of the new landscape, according to a report from McKinsey & Co.
North American assets under management for the year totaled $43 trillion, a 7% increase from the previous year, but overall industry profits (excluding alternative investments) fell 3.7% from the year before to $42.6 billion, according to the report.
The report, "Beyond the Rubicon: Asset management in an era of unrelenting change," published Wednesday by McKinsey, explores six major themes in North America that distinguished 2018 because of the challenging environment.
The themes are institutional and retail clients intensifying searches for yield and diversification as they face the prospect of slower global growth; clients continuing to challenge active management, particularly in domestic equities; the shifting of power in favor of distributors and intermediaries; a new paradigm of clients demanding "good performance at the best price" instead of a "fair price"; an attempt to rein in costs; and the continued importance of scale and scope.
Overall, the report says, the money management industry is in "structural transition." Asset management firms, however, have continued the 12-year trend of outperforming other sectors in financial services, the report says. They have continued to achieve faster revenue growth than banks and insurers and have sustained it with operating margins exceeding 30% during those 12 years.