Passive and multi-asset products accounted for 90 per cent of net new money last year, as 44 per cent of asset managers saw outflows in 2015, new research has found.
Data gathered by consultancy Casey Quirk by Deloitte warns that pressure on fees and certain assets classes mean asset managers need to adapt to survive, offering smart beta, multi-asset and speciality asset management services.
The data gathered from more than 100 asset managers across Europe, the US and Asia Pacific with assets of more than $20trn, showed that 44 per cent of managers reported net outflows last year, compared to 40 per cent in 2014 and 37 per cent in 2013.
Traditional active managers were hit hardest, with those strategies seeing outflows in 2015 against gains in 2014, while new investments to alternatives also slowed. In contrast net flows to passive strategies accounted for 72 per cent of all new money last year.
Fee pressure was also highlighted in the report, with aggregate average fees declining to 0.501 per cent, from 0.514 per cent last year. This hit operating margins at asset managers, which fell to an estimated 32 per cent last year from 34 per cent in 2014.
S&P warned last week that fund fees could hit zero for passively managed funds, with asset managers using them as loss leaders to attract assets.The report highlighted the rise of passives, as over the past decade 95 per cent of new flows went into the lowest-cost quintile of funds.
“Individual investor, increasingly skeptical of active management, fee-sensitive and outcome-oriented, are the drivers of industry growth. Many traditional active managers must adapt because their business models are outdated in a world in which individual investors and their need for advice are the revenue generators,” says Jeffrey Levi, principal at Casey Quirk.
“Fees are under increasing scrutiny, and regulatory pressures are on the rise. This shifting marketplace will in turn drive greater convergence in the industry across wealth management, asset management, insurance and financial technology.”
The report warns that asset managers need to re-examine their business propositions, investment capabilities and distribution.
McKinsey has already warned profits at asset management companies could drop by 30 per cent in the next three years, thanks to the rise of passive investing and as market uncertainty rises.
The study by the consultancy firm says investment managers globally need to do more to cut costs, as flows to active equity have slowed in recent years.
“The asset management industry is now in an era of disruption and consolidation, similar to what Wall Street firms underwent in the late 1970s and 80s,” said Fred Bleakley, director of the US Institute, which contributed to the research. “Surviving asset management firms will be leaders in specialty active management, smart beta passive, and multi-asset class solutions.”