Norman Karrer, zeb partner

The European asset management industry needs to become more focused and cost-efficient to ensure profitable growth and beat shrinking margins, a study has concluded.

The survey, conducted by the strategy and management consultancy zeb in cooperation with Morningstar, has revealed that after decades of continuous growth, the asset management industry is confronted with major structural challenges, particularly where innovation, product design and sales management are concerned. The study analysed 46 European asset managers with a strong footprint in Europe who are looking after a total of EUR 29.3 trillion—and thus roughly one third—of global institutional assets under management.

The study showed that the weakest development in the sector was seen among mid-sized players offering both active and passive investment strategies who were struggling with a comparatively high cost-income ratio and the lowest level of net new money inflow which was significantly below average.

“Over the period of observation, only few asset managers achieved profitable growth, in other words an increase in profitability while at the same time acquiring new clients,” said Norman Karrer, zeb partner and co-author of the study: “Top-ranking asset managers are characterized by above-average growth and profitability as well as a decreasing cost-income ratio.”

The absolute costs of asset managers have continuously increased in recent years, he said, issues mostly hidden by the strong performance of the capital markets over the period of observation which meant that the cost margins remained largely constant. A significant decrease in assets as in 2018 and simulations conducted as part of the study and based on differing assumptions regarding market growth reveal asset managers’ vulnerability. By contrast, asset management product prices have dropped across almost all asset classes both in retail and institutional business within the same period.

by Guy Matthews