Asset management: definition and analysis of the current situation

Tendersetter

9:00 am

29 July 2020

The term “asset management” refers to the systematic management of the savings and investments of individuals and companies. It may be applied to both financial assets (such as shares, bonds and cash) and to other types of assets (such as real estate).

The term is commonly used in the financial sector to describe individuals and companies that manage investments on behalf of third parties.

Assets under management are distinct from assets under administration. In this latter case, the financial intermediary merely acts as a withholding tax agent, while leaving the investment decisions up to the investor, whereas asset management consists in authorising the intermediary to invest savings and assets in order to increase their value.

Asset management: is the industry growing?

The global asset management industry ended 2019 in “high style” only to face a new period of turbulence with the outbreak of the coronavirus pandemic.

In 2019 asset management business increased by 15% to reach $89 trillion. Retail customers were the fastest-growing segment, with business up 19%, whereas business with institutional customers was up 13%.

North America – the world’s largest asset management region – showed the most robust growth at +19% (equivalent to $7 trillion) due to a combination of a strong demand for consumption, historically low unemployment and quantitative easing.

In China – the second-largest discrete market after the United States – asset management activity expanded by approximately 10%, driven largely by a strong retail investor segment. However, even when markets were “sky-high” and asset flows were at their highest levels of the last decade, the asset management industry had to reckon with a series of structural challenges due to the compression of fees and the increase in pressure on costs, and the result was a marginal decline in profitability.

Asset management: the industry’s future

In the near future, it will be essential for asset managers to shepherd their asset flows and profitability through constant structural changes in sectors such as product innovation, cost structure and growth strategies.

The future seems to belong to one of the most dynamic asset classes: alternative investments. This category currently accounts for nearly one-half of all global asset management revenues, despite representing just 16% of the total, and it is expected that investments in alternative assets will account for more than 50% of global revenues by 2024. One of the driving forces behind this growth is an increase in non-traditional return profiles for several subcategories of products that are taking shape as truly “attractive” to investors.

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