of solid growth in 2006 – this marked their fourth successive year
of expansion, according to the latest survey on the industry by
consultancy McKinsey & Company.
But the rate of asset growth fell to 12 percent in 2006, down from
18 percent the previous year and below the average of the past
three years of recovery from the plunge of securities market after
the dotcom bust. Still, this was enough to lift total assets from
€8.9 trillion to just above the €10 trillion level for the first
time.
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Growth in institutional assets continued to outstrip retail
investor growth but, at 14 percent and 8 percent, respectively,
both rates were lower than in 2005.
Performance effects once again accounted for two-thirds of the
growth in assets under management (AuM), while overall net inflows
of 4 percent are at the lowest level seen over the past four years
and are on a par with flows in 2004.
Italy, Spain and Portugal actually experienced outflows. AuM growth
in the US, by comparison, was higher at 17 percent, and long-term
net inflows contributed 4 percent – double the figure of
2005.
Operating profits
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By GlobalDataThe average operating profitability of European asset managers was
up, improving from 16.1 basis points (bps) in 2005 to 16.8 bps in
2006 thanks to higher revenue margins offsetting increasing cost
margins, McKinsey found.
Total profits rose 20 percent, reaching €16 billion and surpassing
even the boom levels of 2000. Profitability in retail business
continues to be about four to five times higher than in
institutional and improved by 2 bps to 27.3 bps, while
institutional profitability increased by a slight 0.4 bps to 5.9
bps.
Net revenue margins in European asset management rose 4 percent
from 34.3 bps in 2005 to 35.7 bps in 2006, with revenues in both
retail and institutional business increasing. For the retail
market, margins were up 7 percent from 50.7 bps in 2005 to 54.5 bps
in 2006, driven mainly by lower payments to distribution as open
platform distribution continued to gain traction.
After two years of declining relative costs, cost margins rose in
2006, nearly offsetting the previous year’s reduction. From 1999 to
2003, cost margins climbed steadily from 15.4 bps to 20 bps. In the
two years that followed, asset managers succeeded in cutting them
back, but once again they are marching upwards. They rose 4 percent
to 18.9 bps in 2006 despite solid AuM growth.
Says McKinsey: “We should strike one word of caution amid these
broadly favourable conditions: the cost developments give cause for
concern as rising cost margins and inflexible cost structures could
prove harmful during a market downturn.”
Its study finds a “clear polarisation” in growth patterns. The
growth winners are Scandinavia, the Netherlands and the UK – what
the report describes as the more “sophisticated” markets – while
the laggards are Italy, Spain, Portugal, Germany and Switzerland,
with growth rates below the European average of 12 percent.
For European asset managers, challenges will include the opening up
of distribution, particularly with the rise of guided open
architecture, McKinsey declares. At the same time, “the focus is
shifting from factory-driven products to customer-centric
needs-based solutions”. It forecasts a progressive polarisation of
asset managers, resulting in a group of five to ten European
mega-players, with strong home markets and significant positions in
two or three other markets.
The McKinsey survey is based on data collected from 118 European
participants with third-party AuM of some €6.5 trillion,
representing around 65 percent of the industry.
