Fund Manager Margins Fall to Lowest Since 2011 as Fee Wars Sting

(Bloomberg) -- Money managers are finding it increasingly challenging to produce profits as fees decline for both active and passive fund strategies, a global report shows.

Operating margins for publicly traded asset management companies fell to an average of 29 percent last year, the lowest since 2011, according to the report published Thursday by Casey Quirk, a business of Deloitte Consulting LLP. Margins dropped by an average of 5.2 percent annually over the past three years, even as assets rose at a 6.9 percent rate.

“Though many asset managers are talking now about cost-cutting, over the past few years we’ve seen most asset managers actually reinvesting in their businesses,” Amanda Walters, senior manager at Casey Quirk, said in a phone interview. “That comes at a cost and both the cost rising and the fee compression is putting a lot of pressure on those margins, even though assets are rising due to capital appreciation.”

Managers are embroiled in a fee war as investors gravitate toward lower-cost funds such as those tracking indexes. To keep some of their expenses in check, firms including State Street Corp., BlackRock Inc. and Legg Mason Inc. have announced job-cut plans this year.

Higher costs are most attributable to technology spending, such as investing in artificial intelligence, Walters said.

Margins are down from a post-financial crisis high of 34 percent in 2015, according to Casey Quirk. The margin decline implies $29 billion of unrealized profits for the global investment management industry -- including closely held as well as public firms -- over the past three years.

--With assistance from Annie Massa.

To contact the reporter on this story: Alexandra Stratton in New York at astratton4@bloomberg.net

To contact the editors responsible for this story: Clementine Fletcher at cfletcher5@bloomberg.net, ;Margaret Collins at mcollins45@bloomberg.net, Josh Friedman, Dan Reichl

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