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capitalizing on
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CAPITALIZING ON
THE RECOVERY
Gary Shub
Brent Beardsley
HLNE DONNADIEU
Kai Kramer
Monish Kumar
Andy Maguire
Philippe Morel
TJUN TANG
Contents
INTRODUCTION
1 3
2 1
2 4
2 5
Introduction
G
Like its predecessors, this edition of our report reflects a comprehensive market-sizing effort. We covered 42 major country markets (representing more than 98 percent of the global asset-management market), focusing exclusively on assets that are professionally managed
for a fee. We also conducted a detailed analysis of the forces that are
shaping the fortunes of asset management institutions around the
globe.
In addition, this report contains conclusions drawn from a detailed
benchmarking study of more than 120 leading industry competitors
representing 53 percent of global AuMthat BCG conducted early in
2013. Our aim was to collect data on fees, products, distribution channels, and costs in order to gain insights into the current state of the industry and its underlying drivers of profitability.
A Snapshot of
the Industry
solute terms was $80 billion, a 7 percent increase from the 2011 level of $74 billion.
However, it remained roughly 15 percent below precrisis highs. The lower absolute profits
were the result of an overall decrease in revenue margins due to a continuing, structural
trend toward lower-margin offerings such as
passive and fixed-income products.
The 2012 results were a positive change from
the year before, when the industrys growth
remained stalled, as we noted in Global Asset
Management 2012: Capturing Growth in Adverse
Times. AuM had essentially flatlined in 2011,
managers failed to attract substantial flows of
net new assets, and operating margins
remained flat.
A quarter of managers globally experienced significant erosion of their traditional actively managed core-asset base in
The Boston Consulting Group | 5
Exhibit 1 | Global Assets Under Management Grew to a Record $62.4 Trillion in 2012
Assets under management, 20022012 ($trillions)
16.6
12
12
9.9
10
6.6
3.5
North America
Europe
14
12
24
0.3
0.8
14
1.3
1.5
Global
15
0.5
1.1
1.2
Latin America
6.3
0.7
17
29
12
1.1
5.9
2.5
3.2
3.8
Managers continued to confront a twospeed world in which the smaller, emerging markets grew faster than the developed markets, with higher net flows.4 At
the same time, AuM growth in the developed markets was significantly greater in
absolute terms because of those markets
dominant size.5
North America finally managed to surpass its 2007 peak AuM level, reaching
$30.3 trillion in 2012, an increase of 9
percent from 2011. Growth was driven by
both market impact and net flows of
roughly 2 percent.
Exhibit 2 | Investors Continued Their Shift from Traditional Actively Managed Core Assets to
Specialties and Passives
2012 net inflows, by product strategy, relative to 2011 AuM (%)
14
15
10
0
1
1
5
10
13
5
All
products
Developedmarket
large-cap
equities
Equities
Global- and
emergingmarket
equities
DevelopedPassive
market small- and equities
mid-cap equities and
specialties
Passive
Multiasset
Global- and
fixed
funds
emergingincome
market
corporate
debt
DevelopedGlobal- and
High-yield
Money
market
emergingdebt
market
government
market
debt
government debt
Fixed
income
Developedmarket
corporate
debt
Exhibit 3 | In Every Region, Most of the Top Ten Strategies Were Specialties or Solutions
United States
Europe
Asia-Pacific
Intermediateterm bonds
130
High-yield bonds
Target date
51
Emergingmarket bonds
Diversified
emerging markets
47
Global bonds
Short-term bonds
37
Large blend
32
61
Flexible
multisector bonds
Europe EUR
bonds
Money market
22
Emergingmarket bonds
39
18
China equities
15
Asia-Pacific bonds;
local currencies
10
25
Real estate
10
29
Emerging-market
bonds
27
Global equities
25
Japanese equities
World allocation
23
24
Multisector bonds
23
23
Global bonds
Conservative
allocation
23
USD money
markets
Absolute return,
multiasset
Emergingmarket equities
22
North American
equities
93
44
USD bonds
41
High-yield bonds
73
6
4
3
2
Solution
Exhibit 4 | The Winner-Take-All Trend Favored Large Passive and Specialty FirmsWinners
Changed Little in 2012
United States
Asset
manager
Cumulative
MutualCumulative
share of net
fund net share of total flows of players
flows, 2012 market net
with positive
($billions)
flows (%)
net flows (%)
Europe
Cumulative
MutualCumulative
share of net
fund net share of total flows of players
flows, 2012 market net
with positive
($billions)
flows (%)
net flows (%)
Asset
manager
Vanguard
139
35
24
PIMCO
44
13
PIMCO
65
51
35
BlackRock
29
21
15
BlackRock
57
65
45
AllianceBernstein
20
27
20
72
49
Nordea
16
32
23
DoubleLine Capital
22
77
53
M&G Investments
13
36
26
T. Rowe Price
15
81
56
AXA
13
40
29
MFS Investment
Management
14
85
58
BNY Mellon
11
43
31
Dimensional
Fund Advisors
State Street
Global Advisors
14
88
61
Standard Lif e
11
46
33
13
91
63
Aberdeen
49
35
Lord Abbett
12
94
65
51
37
Total market
401
Total market
339
Exhibit 5 | Competition Has Driven the Winner-Take-All Trend Down to the Product Level in the
U.S. and Specialty Markets
U.S. fund providers AuM concentration,
by product type (%)
41
Equity core
65
Equity core
Large growth
Large value
Large blend
12 29
Equity Europe
Equity specialties
47
Equity specialties
73
25
49
Global equities
Asia-Pacific equities
Emerging-market equities
North American equities
Other equity sector
Real estate equities
European passive equities
Passive equity specialties
Fixed-income core
13 31
European bonds
Fixed-income specialties
48
Fixed-income core
72
Intermediate term
Municipal
Short term
Intermediate government
Inflation protected
34
56
Global bonds
High-yield bonds
Emerging-market bonds
U.S. bonds
Convertible bonds
Asia-Pacific bonds
Fixed-income specialties
High-yield bonds
Multisector bonds
World bonds
Bank loans
Emerging-market bonds
High-yield municipals
Nontraditional bonds
47
Other core
27 44
76
Other bonds
European passive bonds
Specialty passive bonds
Other core
17 35
Mixed balanced
Mixed conservative
Mixed aggressive
Other specialties
Balanced
29
53
Target maturity
50
Other specialties
Target date
World allocation
Real estate
Mixed flexible
Commodities
72
Alternative
Real estate
Mixed flexible
Commodities
Absolute return
Other passive
0 20 40 60 80 100
Managers ranked one through three
0 20 40 60 80 100
Exhibit 6 | Traditional Active Core Assets and Managers Will Continue to Be Squeezed by New
Faster-Growing Assets
CAGR, 20122016 (%)
25
Passive products/ETFs
20
Fixed-income
ETFs
Passive
equity
10
5 LDIs
Fixedincome
specialties5 Equity
core2
Money market
0
Solutions6
Real
Balanced estate
Fixedincome
core3
Alternative products
15
Infrastructure
Equity
specialties4
Hedge funds
Private equity
Commodities
Funds of
private-equity
funds
Funds of
hedge funds
Structured
Traditional actively
managed products
50
100
Active
200
Passive
Alternative
Sources: BCG Global Asset Management Market-Sizing Database, 2013; BCG Global Asset Management Benchmarking Database, 2013; ICI;
Preqin; HFR; Strategic Insight; BlackRock ETP report; IMA; OECD; Towers Watson; P&I; Lippers/Reuters; BCG analysis.
Note: ETFs = exchange-traded funds; LDIs = liability-driven investments.
1
Management fees net of distribution costs.
2
Includes actively managed domestic large-cap equity.
3
Includes actively managed domestic government debt.
4
Includes foreign, global, emerging-market equities, small and mid caps, and sectors.
5
Includes credit, emerging-market and global debt, high-yield bonds, and convertibles.
6
Includes absolute return, target date, global asset-allocation, flexible, income, and volatility funds.
Notes
1. Asset values for all currencies in all years are based
on 2012 average U.S. dollar exchange rates to prevent
currency swing distortions. The figures here do not
directly correspond with those in our past annual
reports owing to currency rate adjustments, as well as to
updated historical source data and methodology
changes.
2. Active core assets include traditional strategies such
as active domestic large-cap equities, active domestic
government debt, and active balanced and active
structured products.
3. Specialties comprise equity specialtiesamong them
foreign, global, emerging markets, small caps, mid caps,
and sectorsas well as fixed-income specialties,
including credit, emerging markets, global, high yield,
and convertibles.
4. Emerging markets include Argentina, Brazil, Chile,
China, the Czech Republic, Hungary, India, Indonesia,
Malaysia, Mexico, the Middle East, Morocco, Poland,
Russia, South Africa, Thailand, and Turkey.
5. Developed markets include Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Germany,
Greece, Hong Kong, Ireland, Italy, Japan, Luxembourg,
the Netherlands, Norway, Portugal, Singapore, South
Korea, Spain, Sweden, Switzerland, Taiwan, the U.K.,
and the U.S.
Exhibit 7 | Profitability Has Returned to Precrisis Levels, but Net Revenues Remain Flat
Net revenues1 (basis points)
40 29.4 30.9 31.8 34.3 35.3 29.3
28.2 29.8 29.7 29.3
40
20
0
38
34
30
27
38
35
34
36
37
29
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
20
Costs (basis points)
40
20
0
21.4 20.3 19.7 21.2 21.8 19.3 19.9 19.4 19.0 18.5
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Traditional managers
recurring revenues mask
any urgency to chase new,
faster-growing flows.
The dominant share of active core assets in
the overall asset pool continues to generate
the industrys largest single revenue stream
today. This stream will remain significant despite those assets continued slow retreat as a
share of the overall poolat least for managers that successfully shield their active coreasset business from erosion. Managers facing
rapid erosion must quickly move to stabilize
their asset base, as we discuss below.
For most traditional managers, this seemingly
guaranteed stream of recurring revenues
masks any urgency to confront the hurdles
The Boston Consulting Group | 13
Exhibit 8 | Active Core Assets Continue to Lose Share but Still Represent
50 Percent of AuM
Global AuM, by product
$37.5 trillion
Alternatives1
Active specialties2
$62.4 trillion
$47.3 trillion
16
15
11
18
25
2%,
$0.6 trillion
Active core4
Passive/ETFs
10
2003
2012
CAGR (%)
Sources: BCG Global Asset Management Market-Sizing Database, 2013; BCG Global Asset Management Benchmarking
Database, 2013; ICI; Preqin; HFR; Strategic Insight; BlackRock ETP report; IMA; OECD; Towers Watson; P&I; Lippers/
Reuters; BCG analysis.
Note: ETFs = exchange-traded funds; LDIs = liability-driven investments. Any apparent discrepancies in totals are due to
rounding.
1
Includes hedge, private-equity, real estate, infrastructure, and commodity funds.
2
Includes equity specialties (foreign, global, emerging markets, small and mid caps, and sector) and fixed-income
specialties (credit, emerging markets, global, high yield, and convertibles).
3
Includes absolute-return, target date, global asset-allocation, flexible, income, and volatility funds, and LDIs.
4
Includes active domestic large-cap equity, active government fixed-income, money market, and traditional balanced and
structured products.
300
279
12
14
+7
215
8
89
80
68
79
2012
2016, projected
200
13
14
1
66
100
60
0
Solutions
Passive
Money market
Alternatives
Active specialties
Active core
Sources: BCG Global Asset Management Market-Sizing Database, 2013; BCG Global Asset Management Benchmarking
Database, 2013; ICI; Preqin; HFR; Strategic Insight; BlackRock ETP report; IMA; OECD; Towers Watson; P&I; Lippers/
Reuters; BCG analysis.
Note: Solutions include target date, absolute-return, income, flexible, world allocation, and volatility funds, as well as
liability-driven investments; passive includes exchange-traded and passive funds and mandates; alternatives include
hedge and private-equity funds, real estate, infrastructure, and commodities; active core includes active core equity (local
large-cap equity), active core fixed-income (developed-market government debt), traditional balanced funds, and structured
products; active specialties include other active equity and fixed-income products. Any apparent discrepancies in totals are
due to rounding.
or greater outflows from their active coreasset base. In the face of declining revenues
and profits, these managers must invest in
the development of new capabilities. And
they must act quickly before time runs out.
As an immediate step, they should consider a
thorough review to identify and eliminate
any operating inefficiencies in order to free
up cash and refocus management attention
on product innovation, entry into new asset
classes, and development of client relationships. (See the sidebar Efficiencys Next
Frontier: The Target Operating Model.)
Passive
Operations and IT
1.9
3.0
20%
31%
3.2
4.3
21%
28%
Front oce1
Total
(basis points)
4.7
49%
9.6
7.8
Traditional
51%
15.3
10.9
Ambidextrous
(Traditional
and specialists)
4.3
20%
6.1
29%
51%
21.4
15.8
Specialists
5.3
5.8
20%
22%
59%
27.0
Passive
Traditional
Ambidextrous
(traditional
and specialists)3
Specialists4
Net revenues
(basis points)
15
24
37
46
Profits
(basis points)
15
20
Profitability
(% of revenues)
35
36
41
42
AuM CAGR,
20102012 (%)
Revenue CAGR,
20102012 (%)
Profit CAGR,
20102012 (%)
10
10
30
+5%
28.3
27.1 25.9
25.8
24.0
21.3
20
Average AuM
Index
Net revenues1
Index
+11%
120
100
100
97
98
111
105
87
80
100
80
Costs
Index
2%
100
87
78
93
98
70
100
80
60
60
40
40
20
20
Profit pool
100
83
79
86
92 94
40
20
0
2007 2009 2011
2008 2010 2012
0
2007 2009 2011
2008 2010 2012
0
2007 2009 2011
2008 2010 2012
110
100
80
60
60
10
+10%
Index
6%
100
94
98
69
52
40
20
0
2007 2009 2011
2008 2010 2012
0
2007 2009 2011
2008 2010 2012
Revenues are slightly lower than the 2007 level, costs are 6 percent lower
than in 2007, and AuM is up on non-U.S. expansion
Sources: BCG Global Asset Management Market-Sizing Database, 2013; BCG Global Asset Management Benchmarking Database, 2013.
Note: Evolution for end-of-year AuM is based on market-sizing analysis, evolution of average AuM, net revenues, costs, and profits from our
benchmarking sample. Values with fixed exchange rates use the average 2012 rate.
1
Management fees net of distribution costs.
Exhibit 12 | European Managers Profit Pool Remains More Than 30 Percent Below Precrisis
Levels
Evolution of key economics for European players
European market
AuM end-of-year
evolution
($trillions)
20
15
Average AuM
+4%
Index
+10%
16.2 17.5
15.9
16.2
15.1
13.8
120
100
100
95
99
16%
Index
104
101
90
80
100
Costs
100
Index
100
5%
86 84
83 83 84
80
100
95 94 95
Profit pool
100
80
80
60
60
60
40
40
40
20
20
20
80
70
40
5
20
2007 2009 2011
2008 2010 2012
31%
Index
60
10
Net revenues1
100
72
67 69 69
53
models to identify opportunities for improving the efficiency and profitability of their
current business and conduct an honest assessment of their strengths to identify how to
invest in innovation and capability building
where they have a right to win. That will position them to forge ahead with the necessary
investments in future growth.
HARVESTING REWARDS
BY OFFERING SOLUTIONS
In Retail, an Explosion of
Thematic Solutions
On the retail side, in which packaged solutions have traditionally been more common,
the market is seeing the development of
more custom solutions, as well as an explosion in the types of thematic solutions. Increasingly, the latter target specific outcomes
for retail investors, such as inflation-hedged
funds, income funds, liquidity management,
tail risk management, and volatility-managed,
tax-managed, and absolute-return or risk parity funds.
Target date funds (TDFs), with a more specific asset-allocation glide path, have largely replaced the earlier generation of target risk
funds for retirement planning in many defined-contribution (DC) plans. TDFs currently
total $400 billion in the U.S. and are expected
to grow to $1 trillion by 2016 because they
are the main default-option funds in most DC
plans.
Notably, within the high-growth TDF category, there is a rising demand from DC plans for
customization. The demand is driven by specific needs, as well as the desire for greater
diversification and a growing interest in alternative investments.
Many large corporations are investing in
TDFs tailored to the varying needs of specific
employee groups. These include expected retirement ages, corporate beta exposure, promotion and income curves, and employeestock-option-plan variations in participation
rates and stock portfolios.
Cheaper beta
Maintaining Momentum in a
Complex World: Global Wealth
2013
Capturing Growth in
Adverse Times: Global Asset
Management 2012
Acknowledgments
Andy Maguire
Senior Partner and Managing Director
BCG London
+44 207 753 5353
maguire.andy@bcg.com
Philippe Morel
Senior Partner and Managing Director
BCG London
+44 207 753 5353
morel.philippe@bcg.com
Asia-Pacific
Tjun Tang
Senior Partner and Managing Director
BCG Hong Kong
+852 2506 2111
tang.tjun@bcg.com
Monish Kumar
Senior Partner and Managing Director
BCG New York
+1 212 446 2800
kumar.monish@bcg.com
Gary Shub
Partner and Managing Director
BCG Boston
+1 617 973 1200
shub.gary@bcg.com
Europe
Hlne Donnadieu
Principal
BCG Paris
+33 1 40 17 10 10
donnadieu.helene@bcg.com
Kai Kramer
Partner and Managing Director
BCG Frankfurt
+49 69 9 15 02 0
kramer.kai@bcg.com
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