Traditional active managers face ongoing challenges, study argues

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The global asset management industry is moving closer to recovery, a new report claims, but traditional active managers appear to face ongoing challenges after the financial crisis.

According to The Boston Consulting Group’s Global Asset Management 2013: Capitalizing on the Recovery study, total assets under management reached $62.4trn by the end of 2012 – surpassing the previous record of $57.2trn set in 2007.

Last year’s profits amounted to $80bn. Although this was a 7 per cent increase over the previous year, fund managers’ profits remain 15 per cent below their pre-crisis levels.

However, the report adds that 2012’s rise in AUM was driven by the gains seen in global equity and fixed income markets rather than through strong improvements in fund inflows. Boston Consulting says new asset flows remained “relatively modest” and accounted for 1.2 per cent of total AUM.

In addition, the data suggests the bulk of new flows went into solutions, specialties, and passive asset classes rather than to the actively managed core assets of traditional fund managers.

Net flows into passive strategies, fixed-income specialties, and high-yield and emerging-market corporate debt during 2012 “were strong”, while traditional developed-market equities and money market assets saw money flow away.

Indeed, a quarter of managers experienced “significant erosion” of their traditional actively-managed asset base in 2012, despite the broad recovery in AUM. This erosion was particularly strong in Europe, where 30 per cent of managers lost 5 per cent or more of their active core assets through net outflows.

Boston Consulting partner Gary Shub, a co-author of the report, says: “That ongoing structural shift has heightened questions about the future of traditional managers.

“Many asset managers enjoy substantial revenue streams from their existing assets, which often mask the urgency to confront structural changes already here as well as changes to come.”