McKinsey: Money Manager Profits Exceed Pre-Crisis Levels

Dec 17 2014 | 10:13am ET

Money managers’ profits in North America last year surpassed pre-crisis levels, rebounding to $34 billion on asset and revenue growth, according to a study by McKinsey & Co.

Profits were 18 percent above the pre-crisis peak in 2007 after assets reached $30 trillion, the New York-based management-consulting firm said today in a report. Profits at asset managers globally also moved past 2007 levels, increasing 15 percent to $65 billion from 2007. Assets reached a record $64 trillion last year.

Central bank efforts to stimulate economies have driven most of the industry’s growth, according to McKinsey, with the MSCI World Index of stocks rising 24 percent last year.

“The asset management industry’s profitability, enviable as it is, has been propped up by asset and revenue growth,” McKinsey said in the report.

The trend has continued this year with Vanguard Group Inc., the largest U.S. mutual-fund firm, attracting more money from investors in the first 10 months of 2014 than it has in its 39- year history. BlackRock Inc., the world’s biggest money manager, has expanded to oversee $4.5 trillion.

Net inflows at North America’s money managers remained at 1 percent of assets under management for the past three years from 2012 to September, which is a third of the organic growth from 2002 to 2007, according to the report.

ETFs, Alternatives

New subscriptions and revenue are concentrated in passive strategies and exchange-traded funds, active specialties, multi- asset class strategies and alternatives. Money that flowed into alternatives, which includes private equity and hedge funds, reached a high of $4 trillion in the U.S. and $7.5 trillion globally last year.

Alternatives could account for 20 percent of assets and 40 percent of the industry’s revenue by 2020, according to the study. Blackstone Group’s assets, for instance, have grown 35 percent since 2012 to $284 billion, the most among managers of alternative assets such as private equity, real estate, credit and hedge funds.

Costs have increased 29 percent since 2007. McKinsey said it expects costs to increase as the industry needs to “improve digital capabilities, strengthen foundational operations and invest in new talent and skills to generate economic growth.”

Costs have grown 4 percent faster than revenue since 2007. Expenses for the industry rose 10 percent to $80 billion last year from 2008 with the fastest increases coming from sales and marketing and operations and technology.

The report was based on a survey of more than 300 managers -- 100 from North America with more than $18 trillion in assets under management.

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