According to a new report from Boston Consulting Group (BCG), 2014 was a very good year for global asset managers. BCG highlights that profits for the global asset-management industry were up a solid 7% to top $102 billion in 2014. Of note, this figure matches the all-time high in annual profits for asset managers hit back in 2007 just before the financial crisis.
The report noted profits were boosted by “the increasing market value of professionally managed assets, which hit a record high for the third consecutive year, and by new flows unchanged from last year’s level.”
Moreover, global assets under management (AuM) moved up 8% in 2014 to a record $74 trillion. While certainly nothing to sneeze at, this 8% pace is actually notably less than in recent years, and a major slowdown from the 13% AuM increase in 2013.
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2014 was a banner year for global asset managers
While the numbers presented above make it clear 2014 was a banner year for asset managers, net new flows did not play a major role. It turns out market impact was the primary source of AuM growth, but net new flows provided support at 1.7% of 2013 AuM, compared with 1.6% of 2012 AuM in 2013. That said net flows remained several times below their peak years from 2003 to 2007.
Industry profits rebounding to their pre-financial crisis peak of $102 billion was mainly fueled by the increase in AuM. Operating margins (profits as a percentage of net revenues) were unchanged at 39% of net revenues as in 2013, compared with the pre-2007 high of 41%.
One fly in the ointment is that net revenue growth of 7% did not natch the above 9% growth of average AuM in 2013 (largely due to pressure on fees). In fact, the BCG report noted that net revenues measured in basis points or on an asset-adjusted basis continued to slide. moreover, this trend gained strength despite a somewhat more rapid growth of higher-price retail business compared to institutional business.
Global Asset Managers – European asset managers seeing strength
Europe once again saw strong net flow-driven growth in 2014, making Europe one of the fastest-growing regions for net flows after several years as the weakest following the financial crisis. European net flows hit 1.7% of prior-year AuM, relative to 1.3% in 2013. Extremely high net inflows in Spain and Italy were a major contributor to growth, as were ongoing healthy flows in Scandinavian countries and Germany. France and the UK, however, offered a rather weak performance in 2014.
The BCG analysts suggest that the growth of net flows in Europe was connected to the resumption of mutual fund sales by European banks. They note that in the first few years after the crisis, banks mainly undertook deposit account sales to meet regulatory guidelines regarding tighter balance sheets.
Global Asset Managers – Other global markets
The BCG report also highlighted a strong performance among asset management firms in the Americas: “In the Americas, net flows inched up to 1.7 percent of prior-year AuM, compared with 1.6 percent in 2013—with a repeat performance of 1.6 percent in the U.S. and even stronger performance in both Canada and Latin America at 2 percent and 3 percent, respectively.”
Of interest, growth of net flows slowed to 3% in the Asia Pacific area (after strong growth of 4% in 2013) mainly related to lower risk appetite in Japan and Australia. Ex-Japan and Australia, flows in the rest of Asia-Pacific were strong at close to 4%.