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Friday, June 14, 2002

New Research Confirms Industry Woes

by: Sean Hanna, Editor in Chief

Life is not getting any easier for asset managers. The ill vibes are confirmed in a soon-to-be-released study from Capital Resource Advisors. The San Francisco-headquartered consultant to the industry found a "dramatic decline" in the financial results of money managers over the past year.

The decline in business should be forcing senior executives to abandon attempts to find new markets and products. Instead, they should be getting out the green eye shades and rolling up their sleeves. Key metrics include profitability per employee and profitability at a client level. Both of those measures must be in-line with competitors' figures for a firm to be successful in retaining and winning business in the current take-away environment.

"The data we have gathered to date shows an increasingly competitive, shrinking marketplace in which most money managers are scrambling to rein in costs and retain assets," explained Cheryl Rusting, director at CRA.

The problem for most firms is two pronged: assets under management are falling due to the bear market and the surplus of firms is slicing into fees they can charge institutional investors.

CRA found that the year-over-year growth in assets under management has slipped to just 3 percent from 13 percent a year ago. Meanwhile, competitive pressures have dropped the average money management fee by 3 basis points.

The end result is that revenues for asset managers are grew just one percent on average over the past 12 months. That is down from 23 percent last year.

Yet many firms have not been able to reign in expenses as quickly as revenues have fallen, according to the CRA numbers. The firm found that costs rose by seven percent across the industry last year.

That all adds up to a six point decline in the typical net margin to 26 percent from 32 percent.

Paul Schaeffer, executive vice president of CRA, believes that money managers need to get back to basics to exploit the current opportunities in the industry. What they should not count on are revolutionary new products or new markets, he warns. He adds the winners in the current environment will be the best executors, not the visionaries.

"The industry is becoming a take-away game, and execution is going to determine not only who succeeds, but who survives," he adds.

The full results of the research will be published in CRA'sCompetitive Challenges 2002 report at the end of this month.  

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