Playing the Long Game in $49 trillion Global Asset Management - BCG Report

The value of global professionally managed assets — those for which a management fee is paid — grew by around 15% to $49.1 trillion in 2005, with capital inflows driven largely by growth in Europe and Asia, according to a new report by The Boston Consulting Group (BCG). 

Assets under management (AUM) in both Europe and the Asia-Pacific region grew by more than 20% in nominal terms, compared with 9% in the United States. However, the U.S. market remains the largest in the world, with more than $22 trillion in AUM.

Global asset managers must take forceful initiatives to improve the integrity of their businesses if they hope to remain competitive as industry dynamics shift in step with demographic patterns, warns the report. 

Key action items for Asset Managers suggested by the report: 

  • optimize distribution networks 
  • enhance segment and asset-class expertise 
  • explore the development of innovative products
  • foster investment-manager autonomy
  • enhance scale 
  • continue to hammer away at cutting costs 

A highly disciplined approach to distribution will be particularly critical as bulk of power and influence in the industry is continuing to shift away from manufacturers toward distributors and intermediaries that control customer relationships, the report says. 

BCG on U.S. Retirement Assets: 

  • Some 71 million American baby boomers in the 40-to-59 age bracket control an estimated $8.4 trillion,
  • Another 17 million in the 60-to-69 age bracket control an additional $4.2 trillion. 
  • The primary opportunity for U.S. asset managers is capturing funds as they shift from one type of investment to another, such as from corporate sponsored defined-contribution and defined-benefit plans into retail IRAs and annuities. The potential annual flow of such money in motion in the United States is about $1.5 trillion. 

BCG on Emerging Asset Classes:

The report notes that traditional core businesses of actively managed equity, bond, and money market funds are coming under increasing pressure. 

  • Revenue margins have showed relative stability since 2004, at around 45 to 50 basis points for equity funds and 15 to 20 basis points for bond and money market funds, with asset growth stabilizing. 
  • Asset growth should be stronger in noncore offerings - commoditized products such as index funds and exchange-traded funds, as well as alternative investments such as hedge funds and private equity. 
  • Hedge funds assets, which generate revenues in the 150-to-200 basis-point range, already exceed $1 trillion and are expected to grow by 15% annually

The BCG report, Playing the Long Game: Global Asset Management 2006, which is based on a study of 28 national markets, examines the current state of the industry, offers a detailed analysis of the market for retirement assets, and outlines specific actions that asset managers can take if they seek both to raise profitability and achieve a leadership position in the industry. For more info, contact Eric Gregoire, + 1 617 854 4570;  gregoire.eric@bcg.com

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