Asset Management Is Entering `New Abnormal,' McKinsey Says

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  • Profit gap between best and worst asset managers widening
  • Those who embrace tech have best shot at success in future

The asset management industry has entered a “new abnormal,” according to global consulting firm McKinsey & Co.

For the next two decades, firms will encounter a set of challenges including a “moderation” in returns on long-term investments, aging clients who are transitioning from saving to spending in retirement and pressure on fees, according to a report released Wednesday by the New York-based consulting firm.

The converging trends are contributing to a 42 percent profitability gap between the industry’s best and poorest performers, according to the report. More investment funds closed or merged last year than were started for the first time since 2009.

“It’s a bit of Darwinian moment in the industry of asset management,” Ju-Hon Kwek, an author of the report, said in an interview. “I think there’s tremendous opportunity for managers that have been forward leaning and have invested in new capabilities.”

While assets in the industry climbed to a record $75.8 trillion at the end of 2016, organic growth slowed to 1.5 percent compared with 3.6 percent in 2015, the study found. In North America -- the largest asset management market -- investors pulled money.

McKinsey gathered data globally from more than 300 asset managers with $30 trillion combined. The firms that have been most successful have embraced new technologies, the authors say, even if they’re not solely computer-driven, or quantitative, funds.

“It’s not a simple story of man versus machine,” Kwek said. “It’s how do you use technology to turbocharge the investment process.”

As firms try to adapt, pressure on fees and performance may cause a shrinking of the industry, especially as the S&P 500 has been hard for active managers to beat with about an 18 percent return so far this year.

“At the end of the day, it’s a talent-driven industry able to reinvent itself through crises and change,” Onur Erzan, another author of the report and senior partner at McKinsey, said in an interview. “We will see a large amount of successful managers coming out stronger even as some shut down.”

— With assistance by Peter Vercoe

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