Asset Managers in Asia Had the Slowest Growth in Seven Years in 2018
(Bloomberg) -- Asset managers in Asia registered their slowest growth in seven years in 2018 as weaker equity markets damped performance and geopolitical turmoil caused volatility to spike.
But that’s no reason for firms to shy away from investing in the region. They just need to be aware of how to navigate some specific disruptions, McKinsey & Co. said in a report Thursday.
While Asia still dominates global growth, attracting 77% of flows, or about $1.5 trillion, in 2018, asset-management firms’ profit margins could decline by around 10% over the coming five years, the management consultancy said. To mitigate that, McKinsey Senior Partner Jacob Dahl said companies should think about scaling up, gaining more fee flexibility by expanding their product offerings, and embracing new technologies to enhance productivity.
“Asset-management companies will need to establish the right solution infrastructure, such as environmental, social and governance options for high-net-worth individuals and institutional clients,” the report led by Dahl said. “Given the fee pressure on traditional offerings, a solutions orientation will provide AMCs the flexibility to maintain or even grow fee margins.”
McKinsey also outlined five fundamental shifts that are specific to Asian asset mangers. They are:
- Rising costs that make scale critical. Smaller AMCs have cost margins of about 41 basis points (costs/average AUM) versus 18 basis points for larger AMCs
- Margin pressure and client demands are leading to the rise of non-traditional offerings
- More pension and insurance money. In institutional, pension is now the dominant client segment with a 40% share of AUM. Insurance, meanwhile, represented the majority of institutional flows in 2018
- Cross-border integration is key for growth, yet it hasn’t gained traction in Asia because of the region’s varying tax and regulatory regimes
- Slow adoption of digitization strategies -- only 30% of firms surveyed say they are using or installing tools such as digital marketing, big data to de-bias investment decisions or machine learning in risk management.
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