The asset management industry is demonstrating strong optimism as it reached its highest level since the financial crisis several years ago. The record growth of money invested by asset managers is a sign that animal spirits are back in the markets, according to David Oakley, investment correspondent of the Financial Times.
Oakley cited that John Maynard Keynes an economist, used the term “animal spirits” to describe positive actions caused by instinctive optimism.
Investments Of Asset Managers
According to the Boston Consulting Group (BCG), the investments of asset managers worldwide exceeded the highest amount of money that was invested prior to the financial crisis several years ago. In 2012, the total assets under management (AUM) were $62.4 trillion, an increase of 9 percent from $57 trillion in the previous year. The highest recorded AUM was $57.2 trillion in 2007.
The AUM in emerging markets is growing rapidly compared with developed markets. The Financial Times cited that AUM in emerging markets climbed by 16 percent. AUM in China recorded the highest growth rate at 23 percent.
Developed markets still account 90 percent of the total AUM globally with a growth rate of 9 percent last year. The growth rates in the United States and European region were 9 percent and 8 percent, respectively. The AUM in the Northern part Europe, which includes Germany, the Netherlands and the Nordic countries has a growth rate of 11 percent while the AUM southern part of the region composed of Italy, Spain, Portugal and Greece declined by 7 percent.
Gary Shrub, a partner at BCG also perceived such optimism among asset managers, but he expressed cautioned that the markets haven’t fully recovered yet.
Shrub said, “The worst appears to have passed, but there is uncertainty over the unwinding of quantitative easing and the impact of the euro zone, where there are still problems.”
Profits And Inflows Are Due to Rally In Stock Market
BCG cited that the increased amount of AUM, improved profits and investment flows were propelled by the rally in equities and parts of fixed-income markets in the second half of 2012. Profits for the year were increased by 7 percent to $80 billion from $74 billion in 2011. However, the profits were still 15 percent lower than the pre-crisis highs because growths are coming from areas that provide low margins such as fixed income and passive products.
Asset managers also changed their strategies to improve profits and margins such as implementing cost-cutting measures instead of attracting new businesses.
Meanwhile, Daniel T. Fannon, equity analyst at Jefferies said that the majority of traditional asset managers are expected to report improved core profitability in the second quarter of 2013, but the earnings growth vary from each manager due to asset mix. He added that among the asset managers, Affiliated Managers Group, Inc (NYSE:AMG) remained in the best position for growth in the current environment.