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Fee pressure slashes asset manager margins to 2009 low

Fee pressure slashes asset manager margins to 2009 low

Global asset managers' operating margins shrank in 2018, further evidence that firms' profitability is under pressure.

Data on global public asset managers’ performance in 2018 showed operating margins shrank to 29%, nearing levels from 2009 when margins were at 28%, according to strategic consultant Casey Quirk, the asset management consulting unit of Deloitte.

The 2018 figures also mark a fall from the 31% margins firms reported in 2017 and the post-financial crisis high of 34% in 2015.

Overall, the shrinking margins imply $29 billion of unrealized profits for both privately held and publicly listed firms within the global investment management industry from 2015 to 2018. In contrast, Casey Quirk estimates global industry profits totaled at $93 billion in 2018.

For public asset managers, margins have fallen an average of 5.2% annually despite total assets under management rising at an average of 6.9% annually for the three years through 2018.

The falling margins have been driven mainly by an average annual decline of 5% in fees for both active and passive strategies from 2015 to 2018. Comparably, for the three years through 2015, passive had 3.5% and active had 2.5% in fee decline annually.

'The financial performance over the past several years suggests a secular change is occurring in the investment management industry: asset growth is no longer guaranteed to yield margin enhancement as fee pressure intensifies and costs continue to rise,’ said Amanda Walters, senior manager at Casey Quirk.

Walters added that in order to differentiate themselves in the midst of industry challenges, firms need to develop competitive advantages in higher-demand investment strategies, shift pricing policies, allow for more customization and the strategic use of data and technology.

 This content was originally published by Wealth Manager's North American sister title Citywire Professional Buyer.

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