Private equity and other alternative assets are providing almost half of the world’s global asset management revenues, despite making up less than a sixth of assets under management, new research from Boston Consulting Group has revealed.
The impressive result comes on the back of the global asset management industry ending 2019 on a particularly high note, prior to the coronavirus crisis kicking in, with total AuM rising 15% to $89tn.
Institutional client assets grew by 13%, BCG’s Global Asset Management 2020 report said.
North America, the world’s largest asset management region, showed the strongest growth at 19%, or $7tn in value, due to a combination of strong consumer spending, historically low unemployment, and quantitative easing.
In China, the second-largest single market after the US, AuM expanded by an estimated 10% in 2019, driven largely by a strong retail investor segment.
BCG said, “Yet even when the markets were soaring and asset flows were the highest they had been in a decade, the asset management industry faced a set of structural challenges brought on by fee compression and mounting cost pressures—and the result was a marginal decrease in profitability.
“In the year ahead, it will be essential for asset managers to address their asset flows and profitability through continued structural changes in such areas as product innovation, cost structure, and growth strategies.”
The firm’s 18th annual asset management industry report added that it expected to see alternatives approach 50% of global revenues by 2024, driven by a rise in nontraditional return profiles for some product subcategories.
It said that private markets – including private equity, real estate, infrastructure, and private debt – have grown assets at a breakneck compound annual growth rate of 9% since 2008, and they currently represent 60% of revenues in alternatives.
Hedge funds, by contrast, have seen their asset growth decline as overall returns over the past decade have trailed the S&P, although capital still flows disproportionately into the larger funds, with AuM of more than $5bn.
BCG said. “At a time of fierce competition for limited investor capital, asset managers in the alternatives space will need to identify opportunities to rebuild and grow, establishing an edge through technology, expertise, and scale.”
It added, “The year 2020 will not be an easy one for the industry, but it could mark the start of a pivotal era in which investors become more judicious about who they trust with their assets, and the asset managers that flourish are those that innovate and evolve to fit the new realities ahead.”
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