Only a quarter (25 percent) of asset managers that invested in their businesses in the past three years have increased their profits, while 44 percent have not seen a return. A further 31 percent have cut costs, according to an annual study conducted by Casey Quirk, a practice of Deloitte Consulting LLP, and McLagan, part of Aon.
In contrast, between 2011 and 2013 approximately 40 percent of asset management firms were able to grow profitably, suggesting that profitable growth is becoming harder to achieve. The gap between profitable and non-profitable firms is also widening as profitable asset managers increased their median margins by 35 percent between 2014 and 2017, whereas their competitors only increased by 31 percent.
The study found that firms with a lower cost structure, higher efficiency rates, and strong in-demand investment strategies have experienced a 4.6 percent organic growth rate over the last three years. Whereas firms which drawdown margins in order to fund reinvestment efforts have not experienced organic growth. Firms that are cutting costs without investing in their businesses saw a 2.7 percent decline in growth.
Another finding was that significant investment in technology can boost firms, as those that invested in strategic technology to support their investment teams since 2014 saw a 44 percent increase in profits per employee. Additionally, asset managers that invested in technology to support their sales operation had a 40 percent increase in productivity per salesperson.
Adam Barnett, a partner at McLagan, said, “Winning asset managers will continue to focus close attention on how they compensate top executives and portfolio managers. Their incentive plans will need to provide optimal alignment across all stakeholder groups and their broader talent management systems must deliver a compelling employee value proposition.”
The study, entitled Investing for Growth, Performance Intelligence 2018, included more than 95 investment management firms headquartered in North America, Europe and Asia Pacific, investing more than $35 trillion for institutions and individuals.
Casey Quirk, a practice of Deloitte Consulting LLP, is a management consultancy that focuses solely on advising asset management firms.
McLagan helps financial services companies make better decisions by applying market pay and performance information to their business problems.