Boston Consulting Group's annual report shows retail investors driving up AuM in many regions; but profits staying flat, bucked by alternatives.

Market growth and more retail activity took the asset management industry over the $100 trillion threshold in 2020. The industry tallied $103 trillion in assets under management at the end of last year, up 11 per cent for the year, according to the Boston Consulting Group’s latest report.

The 19th annual BCG study of the global asset management industry showed that global net inflows reached $2.8 trillion in 2020, but profits remained static at around 34 per cent of net revenues. This was attributed to persistent cost and fee pressures across all asset classes.

Retail AuM portfolios grew by 11 per cent in 2020, representing 41 per cent of global assets at $42 trillion. Institutional investments grew at a similar pace to reach $61 trillion or 59 per cent of the global market.

North America retained its position as the world’s largest asset management region. AuM increased by 12 per cent in the region to reach $49 trillion. Other regions also registered strong growth, including Europe at 10 per cent, Asia-Pacific at 11 per cent, and the Middle East and Africa at 12 per cent.

UK rallies
The UK market, struggling to fend off dual assaults of the pandemic and Brexit, grew a healthy 10 per cent last year to more than $6 trillion in estimated AuM, a record for funds under management. Institutional clients remained the largest group, and pensions within that continued to be the largest client segment.

UK net retail sales tripled in 2020, compared with the previous year, and strong growth was reported in sustainable investing.

The report is a good benchmark for how the asset management industry is coming out of the global health crisis and what adjustments the industry needs to make, “especially in distribution,” BCG managing director and partner, Lubasha Heredia, and co-author of the report, said.

“The next big task for all industry players will be to carve out a suitable growth strategy as they refocus on the core areas of differentiation and advantage, which could be any combination of client engagement models, investment products, operating models, or talent strategy,” she said.

Passive vs active
Passive investments continue to lead in market share, increasing AuM by 17 per cent globally for the year, a trend that is expected to continue over the next five years, the consultancy firm said, forecasting 9 per cent growth annually.

Assets managed in traditional and specialized active products also expanded for the year. For example, large-cap equity funds and domestic government-based fixed-income funds were up by 11 per cent for the year; money market funds were up 12 per cent; and specialized active products were up 9 per cent. But the report suggested that these product groups will be the slowest-growing over the next few years.

Alternatives winning
Alternatives again produced strong inflows, with AuM growing by 11 per cent for the year. More telling, the asset class captured 40 per cent of the industry’s revenue while representing just 15 per cent of global AuM.

Private markets are increasingly seen as the place to head for the biggest investment growth opportunities. BCG devotes a chunk of this year’s report to mapping out the sector’s likely transformation over the next few years. “We see potential for big wins in private markets, especially for firms that can successfully enter the retail market, systematically use data and analytics to enhance decision-making, and integrate meaningful ESG metrics,” the report said.

Distribution, top priority
The pandemic has forced asset managers to accelerate overhauling multiple aspects of their businesses, and distribution is marked as a top priority by the report.

“The next generation of distribution will combine advanced digital capabilities with the human touch,” co-author and managing director and senior partner Simon Bartletta said. “The early achievements we are seeing that have been gained from asset managers investing in digital distribution are truly impressive,” he said.