Over the last decade, consolidation among asset managers has surged — a trend expected to continue as the industry faces growth challenges.
In new research, Casey Quirk analyzed the 50 largest asset managers and found that 40 percent of them — or 20 firms — were able to grow their net new revenues (revenues associated with positive net flows) at a rate greater than the industry average from 2009 to 2019. Their revenue share increased from 24 percent to 32 percent of the industry during the same period, “a big jump” considering the fragmented nature of the asset management industry, according to Kevin Quirk, principal of Casey Quirk, a Deloitte Consulting business.
“To think that roughly 20 firms went from owning 24 percent of the market to 32 percent of the market in a 10-year period — that is pretty dramatic,” Quirk told Institutional Investor. “If you go back to pre-GFC, you had an industry [that was] friendly and non-consolidating. It didn’t have a lot of fee pressure or growth pressure, and everything was flourishing.”
The 20 top performers include equity, fixed income, and alternative investment managers, according to the report. Their common ground was that they all “targeted the right growth tailwind,” Quirk said. For example, successful fixed income shops honed their fundamental investment skills as demand grew for active management of the asset class. Other outperformers grew their revenues by targeting the wealth and retail markets, Quirk said.
The top 20 asset management firms grew their dollar profit at a compounded annual growth rate of 10 percent in the decade ending in 2019, higher than the industry average of 8 percent, according to the report. They also displayed a greater willingness to adopt technology in their day-to-day operations. As of 2021, they allocated 2 percent more of their total revenue to improve technology than the industry average.
“Winning firms enhance their business by rethinking work, better leveraging third parties, and using data to drive unique insights,” according to the report. “These firms embraced new and innovative capabilities that improved their investment processes, product quality, investment returns, client experience, sales productivity, operational efficiency, client tenure, business decision-making, internal controls, and talent experience.”
Quirk believes consolidation will likely happen at a faster pace in the asset management industry in the post-pandemic era. “In my view, I think the pandemic era may have even greater impact on the consolidation and competitiveness of the industry,” he said. “I think we’ve got even more difficult capital markets. And I also think the operating environment has been challenged dramatically by the fact that we went from working in person to a much more hybrid model…On top of that, we are facing higher fee pressures and we’ve already seen lower organic growth numbers than in the 2010s.”
