Asset management industry ‘under pressure’ as costs rocket

The global asset management industry is coming “under pressure” globally this year after costs rocketed at more than twenty times the rate of revenues last year, Boston Consulting Group has warned.

In a new report, the consultancy firm found that total assets under management in the industry ticked up 12 per cent to nearly $120 trillion last year but rising costs were eating into companies’ margins.

While the revenues rose by 0.2 per cent in 2023, costs rose by 4.3 per cent for the year, triggering an 8.1 per cent slump in profits.

The numbers underscore the pressures facing the money management market as weak investor flows weigh on revenue growth and inflation ramps up costs. Investors globally have also opted to shift cash into lower cost passive funds, eating into the fees made by firms.

London’s asset managers have been among those to feel the squeeze most sharply over the past 12 months, with surging inflation and the sluggish performance of the domestic markets dampening investors’ appetite. 

The outgoing chief of FTSE 100 fund manager Schroders, Peter Harrison, described 2023 as “one of the most challenging years for global active asset managers in recent times”, and warned that geopolitical jitters and elections would continue to roil the markets this year.

Shares in some of London’s biggest money managers have cratered over the past 12 months. Schroders is trading down around 25 per cent, while rivals Jupiter and Liontrust are trading down 38 per cent and 12.65 per cent, respectively.

“The structural challenges facing the industry will only continue to grow,” said Dean Frankle, a managing director and partner at BCG, and coauthor of the report.

BCG said artificial intelligence was one way that money managers could look to control their cost base.

Despite a turbulent 12 months, BCG found that the UK remains the largest market by assets under management, but was losing ground to rivals. France and Germany were amongst the highest growing markets with both notching double-digit growth last year; while Italy and UK experienced lower single-digit increases.