NEW YORK, Aug. 2, 2012 /PRNewswire/ -- Operating margins in the global asset management industry have recovered from their 2009 lows, at a median 32% in 2011, yet they remain below pre-crisis levels and the sector faces headwinds in the years ahead from choppy capital markets and tepid revenue growth in traditional asset categories.
According to a new industry analysis surveying 96 money managers worldwide that oversee approximately $21 trillion in assets, profit margins since the financial crisis have been managed by controlling compensation and benefits expense. But keeping the lid on costs will not sustain current profit margins into the future. Instead, successful asset managers will need to focus on sustaining and growing revenues by maintaining the following five key characteristics going forward:
- Investments – unique alpha skills, benchmark-tracking, or multi-asset class solutions to clients
- Sales and marketing – well-resourced and led teams
- Client-facing capabilities – technically-skilled client interface built to operate in a solutions environment
- Talent recruitment and retention – strong long-term alignment systems for key professionals
- Operational independence – ability to function as best-practices investment manager
The economic benchmarking analysis, Performance Intelligence: 2011 Survey Results, was conducted by the U.S. Institute, a NY-based members-only forum established for CEOs of leading investment management firms; McLagan, the investment management industry's leading provider of compensation consulting services and pay and performance data; and Casey, Quirk & Associates, a leading management consultant to investment management firms worldwide. The analysis surveyed a mix of managers – privately held, publicly traded and wholly or partly owned – with assets under management ranging from well below $50 billion to over $1 trillion in assets.
"These findings, based on one of the largest industry surveys of asset management economics, should be a wake-up call to asset management firms,'' said Fred Bleakley, director of the U.S. Institute. "While still highly profitable, the industry will be challenged as never before.''
However, alternatives and the expansion of professional money management in new markets will provide substantial growth opportunities for the industry. By 2016, alternatives – including hedge funds and funds of hedge funds, private equity, real estate, and commodities – will represent 40% of total asset industry revenue and 17% of assets under management (AUM). By contrast, in 2000, alternatives generated 9% of industry revenue, and 3% of AUM.
As inflows slow from the historic North American, European and Japanese sources of investor growth, emerging markets in Latin America, Asia ex-Japan and the Middle East are expected to present asset managers with the best opportunities for new funds from institutional and retail investors.
"Though ingredients for past success are no longer sufficient in today's environment, asset managers that adopt the critical future success characteristics we've outlined can succeed in growing revenue and maintaining strong profit margins,'' said Jeb Doggett, partner at Casey Quirk.
About U.S. Institute
The U.S. Institute, founded in 2000, is an exclusive membership organization that brings together senior officials from the leading investment management firms in the United States. The U.S. Institute provides this innovative group with a unique platform to meet with peers, share ideas and stay ahead of their competition. For more information please visit www.iimemberships.com.
McLagan helps financial services companies make better decisions by applying market pay and performance information to their business problems. Clients include virtually every leading global financial services firm, including investment, commercial and retail banks, securities firms, investment management organizations, hedge funds, and insurance companies. For more information please visit www.mclagan.com.
About Casey, Quirk & Associates LLC
Casey Quirk is a management consultant that focuses solely on advising investment management firms. Casey Quirk's work with senior leadership teams includes broad business strategy reviews, investments/product positioning and strategy, market opportunity evaluations, organizational design, ownership and incentive structuring, and transaction due diligence. In the past five years, Casey Quirk has advised a majority of the top 25 investment management organizations worldwide. For more information please visit www.caseyquirk.com.
SOURCE Casey, Quirk & Associates