Asset Managers’ Global Growth Surge Sets Stage for Digital Competition

Jul 24, 2018


A surge in global growth by the asset management industry, occurring as advanced digital and analytics are finally going mainstream, has positioned firms to invest in capabilities needed to stay competitive, according to Global Asset Management 2018: The Digital Metamorphosis by The Boston Consulting Group (BCG).

Fueled by bull financial markets, asset management’s growth rebounded in 2017. Firms set global records for net inflows of assets and for profitability, according to BCG’s 16th annual report on the industry. Total assets under management (AuM) recorded their strongest growth in a decade.

The value of global AuM rose by 12% to $79.2 trillion in 2017, from $71.0 trillion in 2016, the BCG report says. This represents the strongest annual growth since 2009, when assets rebounded from the depths of the global financial crisis the year before.

At the same time, advanced digital and analytics are finally going mainstream across the asset management industry. Nearly every firm now has a digital agenda—hiring technologists, experimenting with new analytics, and testing alternative data.

The recent solid performance of asset managers extends beyond a strong showing in business fundamentals, such as AuM growth and profit, according to the report. Firms have also delivered excellent investment returns to their owners, as measured by total shareholder returns (TSR), the standard gauge of gains received by company owners.

Over the past five years, publicly owned asset managers recorded an average TSR of 12%, surpassing the robust performance of global stock markets. The top quartile of asset managers generated average annual TSRs of 20%, compared with an average of 9.1% for asset managers in the other three quartiles, considered as a group.

Analysis Reveals Winners’ Traits

Disaggregating and analyzing the TSR data, the report says, revealed that the most successful firms grew at the same rate as others, but achieved greater profitably by maintaining prices and expanding margins. In terms of product strategy, the most notable winners were either small niche players or very large asset managers with strong growth in passive products.

Passives, in fact, were easily the highest-growth product category in 2017, posting a record 25% increase in AuM. Traditional active products continued to lose share to solutions and specialties. Going forward, the rapid growth of “smart beta”—passive products with an active component—could pose a bigger competitive threat to active management than the broader passives trend.

China and US Lead in Regional Market Growth

AuM grew robustly in regional markets around the world, led notably by China and the US, the BCG report says. China's 22% growth in AuM elevated it to the fourth-largest global market, up from eighth place five years earlier. The partial opening and rapid growth of the Chinese market, has created the conditions for a potential gold rush among foreign firms.

The North American market was the second standout regional performer, buoyed by US growth of 14%, the strongest among mature markets. The European market grew less robustly at 7%.

The benchmarking survey that informed this year’s report drew on 165 leading asset managers representing $48 trillion—or more than 65%—of global AuM, and it covered more than 3,000 data points per player.