Double-Digit Growth Prolongs Winning Streak in Asset Management
Assets Under Management Increase by 12% as Net Flows Set Record and Profits Rise; Disruption Is Expected as New Trends Emerge, Says Report by Boston Consulting Group
BOSTON—The asset management industry continued its unprecedented growth trajectory in 2021, with global assets under management (AuM) rising by 12% to $112 trillion, significantly above the 20-year growth average of 7%, according to a new report by Boston Consulting Group (BCG). Net flow rates were also at record levels, at 4.4% of total AuM. The report, titled Global Asset Management 2022: From Tailwinds to Turbulence—the 20th edition of BCG’s annual study of the industry—is being released today.
Strong performance in equity markets has been the key driver, representing 90% of revenue growth between 2005 and 2021. During the same period, revenues from net flows have been largely offset by investors shifting their asset-class mix toward lower-priced products and by ongoing fee pressure. Yet despite rising costs, operating profit margin rose to a healthy 38% in 2021, up from 36% a year earlier, as average AuM growth outpaced the increase in costs.
The passive market, which surged after the 2008 financial crisis in particular, has continued to draw strong interest from investors. By 2021, AuM in passively managed products had grown at more than four times the rate of their actively managed counterparts since 2003. The passive space has become increasingly concentrated, however, with almost 75% of all new capital over the past 5 to 10 years flowing to the top 10 global players—compared to around a quarter of positive net new inflows in the active market. As a result, the active market is currently offering players more opportunities to differentiate.
“The incredible market run that has fueled the performance of the asset management industry over the past 15-plus years has been a double-edged sword,” said Chris McIntyre, a BCG managing director and partner, who coauthored the report. “On the one hand, it has provided strong tailwinds for the sector, but it has also challenged innovation, allowing the market to be dominated by legacy products that benefit from the compounding effect of returns on underlying assets. There are signs that these trends are beginning to shift, and the ensuing turbulence is an opportunity as well as a challenge for industry players.”
Emerging trends that are expected to shape the future include an increasing shift of portfolios into alternative assets in the pursuit of higher returns compared to publicly-traded markets. Alternative products represented less than 20% of global AuM in 2021, but they constituted more than 40% of total asset-management revenues. This trend is expected to continue over the next five years, with revenue from alternatives forecast to grow to more than half of all global revenues in the industry by 2026.
Moreover, with $100 trillion to $150 trillion in capital deployment required to reach net-zero goals by 2050, demand for sustainable investments represents an opportunity that will dominate the sector in both the short and long term. Roughly $20 trillion to $30 trillion is expected in bond and equity allocations for asset managers, much of it frontloaded over the next few years as more investments flow into climate-transition projects.
Finally, new technologies such as direct indexing are putting the core value proposition of asset managers at risk of disintermediation by simplifying the manufacturing and packaging process—which enables new participants to enter the market and build personalized products that they can take directly to their clients. This is especially the case for wealth managers, leading to a growing convergence between the asset- and wealth-management industries, which are both beginning to chase the same asset pools.
“The asset management industry is at a tipping point,” said Hanka Mörstedt, a coauthor of the report. “While new trends which are blossoming in the sector are likely to cause some disruption, they are also an opportunity for players who position themselves early and take advantage of new, emerging ways to win.”
Download a copy of the report here.
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.
About Boston Consulting Group
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.
Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.