Asset Managers Post Negative Revenue Growth for 2022 - Alternatives Continue to Outshine

Profits, Revenues, and AUM were all in the red for traditional managers in 2022

NEW YORK and STAMFORD, Conn., April 3, 2023 /PRNewswire/ -- Traditional publicly traded U.S. asset management firms were under pressure in 2022 as they faced revenue, profit and AUM declines following a year of dramatically rising capital markets in 2021 that generated all-time revenue and profit highs, according to new research from global asset management strategy consultant Casey Quirk, a Deloitte business.

According to Casey Quirk, the median revenue at asset management firms in aggregate decreased by 4% in 2022 versus an increase of 20% in 2021. The median assets under management, or AUM, declined by 16% compared with a rise of 14% the prior year, according to the analysis. Organic growth was down 1% in 2022 as compared with a positive 3% in 2021 and profit declined by 6% versus an increase of 33% for the year earlier. Despite these challenges, operating margins remained healthy for the industry at 34% and revenues still surpassed 2020 levels at $63 billion.

Alternative asset managers, such as large private equity firms, continued to buck the trend. Alternatives firms' median revenue grew by 20% in 2022, AUM grew by 11%, and profits grew by 27% with strong capital raising and successful expansion in new and affiliated market segments. On the other hand, traditional asset managers' median revenue fell by 9%, AUM declined by 17%, and profits fell by 12% driven by significant capital markets volatility for publicly traded equity and debt. Casey Quirk reviewed 17 listed traditional and alternatives asset managers in North America with a combined $17.6 trillion in AUM as of Dec. 31, 2022.

"The bifurcation between traditional and alternatives firms became even more stark in 2022," said Amanda Walters, principal at Casey Quirk. "From a financial perspective, the differences are dramatic, both in terms of revenues and profits as many alts firms had strong flows from both the retail and insurance channels as investors sought yield and excess returns."

The latter half of 2022 saw firms failing to match operating expense adjustments to revenue declines, exacerbating profit pressures for traditional managers. Cost growth for the industry rose about 1% year-over-year, with increases in both compensation and non-compensation expenses driven by inflationary pressures, a still-tight labor market, and strategic investments in new capabilities and technologies. Headcount growth throughout 2022 was surprisingly strong at 8% from the year earlier. But traditional managers increased headcount by 1% while alternatives managers increased headcount by 14%.

Continued hiring increases in the current inflationary environment and growing technology expenses mean that cost structures are becoming less flexible. In past periods of market decline, managers were able to quickly adjust variable compensation to prevent severe margin compression. In this environment, asset managers have articulated a range of cost containment initiatives including reductions in discretionary spending, hiring freezes and decreases in headcount.

"The uncertainty and volatility of markets in 2022 seems to have carried into 2023 so far," said Scott Gockowski, senior manager at Casey Quirk.  "Given the dependence of the industry's economics on markets, we expect 2023 will continue to be a period where asset managers will need to carefully consider their investments in talent and technology. And alternatives firms in particular, who continued investing in their businesses at a very strong pace in 2022, may face more pressure as top line pressure increases."

Casey Quirk, a business of Deloitte Consulting LLP, is a leading management consultancy that focuses solely on advising asset management firms. Casey Quirk was established in 2002 and acquired by Deloitte in 2016. The organization has advised a majority of the 50 largest asset management organizations worldwide, including eight of the top 10. Casey Quirk provides senior leadership teams with broad business strategy reviews; investment positioning and strategy consulting; market opportunity evaluations; organizational design; ownership and incentive structuring; and transaction due diligence. For more information, please visit www.caseyquirk.com.

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SOURCE Casey Quirk