Publicly-traded and privately-held asset managers are growing at twice the pace of their brethren who part of larger companies or holding companies.

That's one of the tidbits found in the just-released Performance Intelligence: 2013 Survey Results from industry management consultant Casey, Quirk & Associates and industry compensation consultant McLagan.

The two shops surveyed 101 money managers, each ranging from under $50 billion in worldwide assets under management to over $1 trillion, representing a combined total of $23 trillion in AUM. Casey Quirk and McLagan found that, from 2007 to 2012, privately-held asset managers' revenue grew the fastest, an average of 8.4 percent per year. Publicly-traded shops grew a bit slower, 7.0 percent on average. Yet revenue at shops under "larger financial institutions" (i.e. banks, insurers, etc.) grew by only 4.3 percent on average. And revenue for shops under asset management holding companies actually fell by an average of 4.6 percent.

Ben Phillips, partner at Casey Quirk, told MFWire that top quartile shops saw revenue grow at about 16 percent per year on average over those five years, compared to zero or negative growth for the bottom quartile.

"What separates the winners from the losers?" Phillips asked, rhetorically.

He offered a number of differentiators: "the ability to retain talent," "investment innovation," "the ability to defend your fees," and more.

"At a broad sense, asset management firms need to become more competitive," Phillips said, adding the days of easy, six percent annual industry growth are over.

The report also notes median pre-tax operating margins overall rose to 32 percent last year, the highest since 2007, and revenue surpassed the old 2007 peak. Yet inflows only reached 1.2 percent last year, less than one-third the 3.7 percent rate for 2007. Casey Quirk and McLagan executives described a tough near-term future for assets managers.

"With annual net flows of under 1% anticipated through 2017 these findings … indicate managers must adapt and innovate to keep up let alone to continue thriving," stated Kevin Quirk, a partner at Casey Quirk.

"In a slow growth environment, asset retention is crucial, and winning firms stand out with more robust staffing sales and client service and operationally by aligning their economics for superior attraction and retention of talent," stated Adam Barnett, head of McLagan's asset management practice.

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Company Press Release

Global Asset Management Revenue Climbs Past Pre-Crisis Peak; Tepid Net Flows Point to Heightened Competition, According to New Benchmarking Analysis

NEW YORK, June 27, 2013 –Median pre-tax operating margins rose to 32%, the highest since 2007, according to a new benchmarking analysis surveying 101 money managers worldwide who invest an aggregate $23 trillion for institutions and individuals. The new high in profit margin was driven by market appreciation, which also lifted 2012 revenue in the global asset management industry past the previous 2007 peak.

However, net inflows of 1.2% last year – compared with 3.7% in 2007 – increasing fee pressure, and a widening economic divergence among firms post-financial crisis point to growing industry challenges, according to the new analysis, Performance Intelligence: 2013 Survey Results.

The global survey participants largely came from the U.S. Institute and European Institute, members-only forums established by Institutional Investor’s conference division for CEOs of leading investment management firms. Casey, Quirk & Associates, a leading management consultant to investment management firms worldwide, has conducted the survey (its tenth annual) in partnership with McLagan, the investment management industry’s leading provider of compensation consulting services and pay and performance data. They surveyed privately held, publicly traded and wholly or partly owned firms with assets under management ranging from below $50 billion to over $1 trillion in assets.

“With annual net flows of under 1% anticipated through 2017 these findings, based on one of the largest industry surveys of asset management economics, indicate managers must adapt and innovate to keep up let alone to continue thriving,’’ said Kevin Quirk, partner at Casey Quirk.

Traditional investment offerings will continue to be challenged, while outcome-oriented and higher alpha strategies will enjoy the highest net flows, according to the benchmarking analysis. These include: hedge funds; balanced strategies; global tactical asset allocation and multi-asset class solutions; emerging markets debt; and global equities.

“In a slow growth environment, asset retention is crucial, and winning firms stand out with more robust staffing in sales and client service and operationally by aligning their economics for superior attraction and retention of talent,’’ said Adam Barnett, head of the asset management practice at McLagan.

Privately held and publicly listed asset managers enjoyed the strongest revenue growth in the 2007-2012 period, expanding at average annual rates of 8.4% and 7.0%, respectively, according to the benchmarking analysis. Firms owned by larger financial institutions had average annual growth rates of 4.3% over the same period, while revenue at affiliates of asset management holding companies declined on average 4.6%.

Of the firms surveyed, those in the middle, with managed assets between $50 billion and $200 billion, enjoyed the strongest rebound in operating margins, to 32% in 2012 from a low of 15% in 2009, and were most consistent in attracting net flows over the period 2007 to 2012.

“It’s abundantly clear firms must retool to take advantage of market segment opportunities and changing investor demands, or risk losing talent and market share to more adaptable competitors,’’ said Fred Bleakley, director of the U.S. and European Institutes.

About U.S. and European Institutes

The U.S. Institute, founded in 2000, is an exclusive membership organization that brings together senior officials from the leading investment management firms in the United States.  The U.S. Institute provides this innovative group with a unique platform to meet with peers, share ideas and stay ahead of their competition. The European Institute, formed in 1988, is an exclusive private membership that brings together senior representatives from the investment management divisions of banks, insurance companies, and leading independent firms in Europe. For more information on the U.S. and European Institutes please visit www.iimemberships.com.

About McLagan

  McLagan helps financial services companies make better decisions by applying market pay and performance information to their business problems. Clients include virtually every leading global financial services firm, including investment, commercial and retail banks, securities firms, investment management organizations, hedge funds, and insurance companies. For more information please visit www.mclagan.com.

About Casey, Quirk & Associates LLC

Casey Quirk is a management consultant that focuses solely on advising investment management firms.  Casey Quirk’s work with senior leadership teams includes broad business strategy reviews, investments/product positioning and strategy, market opportunity evaluations, organizational design, ownership and incentive structuring, and transaction due diligence.  In the past five years, Casey Quirk has advised a majority of the top 25 investment management organizations worldwide. For more information please visit www.caseyquirk.com. 

 

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