Profit margins in the asset-management industry were 39% in 2014, according to BCG, a consultancy, compared with 8% in consumer goods and 20% in pharmaceuticals.
Yet the outlook for many asset managers is grim. The industry is being reshaped by low-cost competition. At the same time falling markets are shrinking assets under management, and thus fees levied as a percentage of those assets. Regulators, meanwhile, are trying to prevent consumers from being sold inappropriate products, which are often the most lucrative.
Indeed regulation and technology are adding to the challenges for incumbents. Regulators start looking at asset managers, with everything from the transparency of their fees to the liquidity of their investments under the spotlight.
Fees on passive equity funds for retail investors dropped by a fifth over the same period, as operating costs keep falling. Passive powerhouses like Vanguard and BlackRock, both of which also sell actively managed funds, are the main beneficiaries of the upheaval in the industry.
Meanwhile, institutional investors are reducing the number of managers they deal with. RPMI Railpen, a British pension fund, has gone from 20 external equity managers in 2013 to seven today.
Please read the full article from The Economist here.