Western European investment managers hit new AuM high in 2020: report
Lows and highs marked the investment management industry all along 2020. The industry’s swift recovery in the aftermath of the Covid-19 market turmoil in Q1’20 has led to a new record in managed assets globally.
According to estimations published on Monday by consultant McKinsey, investment managers run €92.5trn in assets worldwide as of end 2020, up 11% year-on-year. The asset growth benefited Western European asset management firms’ AuM which soared 5% (+€1.2trn) over 2020 to reach a new high at €25.2trn. Institutional investors accounted for 68% of these AuM.
However, AuM growth rates at Western European asset management companies slowed over last year with institutional and retail assets’ growth rates from 12% to 5% and 15% to 6% in a year respectively.
Net new cash boarded by Western European asset managers rose 3.2% yoy and amounted to €750bn, the highest since 2014. That despite a €100bn net redemption faced by the managers in Q1’20 and their market performance having been the third worst performance over the last decade (2%).
“In a year combining crisis and tremendous volatility with a capital market bonanza, AUM growth was powered by stronger retail and high-net-worth (HNW) inflows after two years of weakness. The contribution of the retail base recovered to about 36% of all net inflows, roughly equal to the segment’s proportion of assets under management. In absolute terms, net flows from the retail and HNW segment rose sharply to about €270bn in 2020 from about €160bn in 2019, while institutional net flows rose over the same period by about 12%, to roughly €500bn,” McKinsey underlined.
The consultant stressed that Western European asset managers’ profit margin remains fairly stable at 13.6% with small declines observed in revenue and cost margins. Their cost-to-income ratio amounted to 59% in 2020, down from 60% the year before.
McKinsey said the Western European revenue pool jumped 7% to €55bn in 2020 from €51.6bn in 2019 while profit pool grew 11% to €22.8bn (vs. €20.6bn in 2019).
More regionalisation to expect
Looking into major trends currently driving the asset management industry, the consulting firm said investment managers will “likely see further declines of interest in fixed income among retail investors” as a result of a prolonged period of easy monetary policy.
According to McKinsey, asset managers must also evaluate potential consequences of Covid-19’s government interventions when developing portfolio strategies. The consultant refers in particular to possible increases in state control of companies. It also highlighted the shift to digital. This trend may increase uncertainty in equity markets by way of an accelerated sectoral dispersion leading managers to adjust their portfolio holdings in favour of the more dynamic companies.
Furthermore, McKinsey said Western European asset managers can expect increasing challenges in cross-regional ventures, these “stemming from country- and region-specific regulation.” Managers will be under pressure to provide more localised and focused products.
Lastly, McKinsey advised Western Europe’s asset managers must act on three things. “They should play a leadership role in shaping a sustainable future in firms’ investing, embrace technological disruption, and capture additional profit pools,” it said.