Money Managers See Consolidation as More Cash Flows to Passive

  • In CFA survey most managers predict contraction of margins
  • Trade group tallied responses from 1,145 managers globally

Money managers see less of everything in their future: fewer firms, profits and active investments.

A large majority of the 1,145 industry leaders surveyed in December by the CFA Institute, a global trade group, predict tough days ahead for their profession. Eighty-four percent forecast more industry consolidation in the next five to ten years; 70 percent said more money will flow into passive products; and more than half see a contraction of profit margins for asset managers.

The survey, which was released Monday in the group’s “Future State of The Investment Profession” report, comes as a flood of money into low-cost passive funds roils the industry. Investors pulled $307 billion from actively managed funds and added $614 billion to passive ones in the year ended Feb. 28, according to data from Morningstar Inc.

Firms Face Headwinds

84%expect industry consolidation in next 5-10 years
70%see investors increasing allocations to passive products
52%forecast contraction of profit margins at asset managers
57%predict more in-house management by institution investors 

In March, U.K. money managers Standard Life Plc and Aberdeen Asset Management Plc, agreed to combine, the latest defensive move in an industry struggling to protect market share from cheaper passive funds. Last week, BlackRock Inc., the world’s largest money manager, fired more than 30 people in its active equities group and shifted $6 billion into cheaper funds that quants help to manage.

The explosion of data available to investors has taken the edge away from active managers, according to Rebecca Fender, one of the authors of the report. “Active management is about finding under-priced securities,” Fender said in a interview. “With the growth in data and information it becomes harder to find those opportunities.”

Fender wrote in the report’s executive summary that active management could become a boutique offering that “succeeds only where digitization of information and liquidity is poor.”

The industry leaders surveyed include asset owners and managers, some with more than $50 billion under management, located in five regions across the globe.

The 18-member S&P index of custody banks and asset managers gained 2.4 percent, including reinvested dividends, this year through March 31, compared with an increase of 6.1 percent for the S&P 500 Index.

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