zeb European Asset Management Study 2020
In light of the ongoing COVID-19 pandemic, the business models of large European asset management companies are becoming ever more vulnerable. In its recent study, the strategy and management consultancy zeb shows that negative economic trends, continued negative interest rates, increasing credit risks and the persistently high level of uncertainty on the financial markets will reinforce the negative trends in the asset management industry that have already set in. The study analyzed 44 large asset managers with a strong footprint in Europe that are looking after a total of approx. EUR 34 trillion – and thus roughly one third – of global assets under management.
Obvious cost issues in the industry
In detail, the study revealed that intense competition, declining fees and insufficient cost-cutting ambitions have put the profitability of the European asset management industry under severe pressure. The authors of the study predict that the situation will continue to worsen in the future. Dr. Carsten Wittrock, author of the study and Partner at zeb, explains: “Currently, cost growth is exceeding revenue growth for most asset managers and accordingly, average profits are falling. This is where the industry’s cost issues become obvious – a clear trend that has continued to solidify in recent years.”
Profit margins still in decline
The margin development in European asset management already gave reason for concern without the impact of the COVID-19 pandemic. The average profit margin in the current study’s reporting period, for example, fell again across all asset management categories. Medium-sized providers were particularly affected. Only the largest providers showed above-average growth with virtually unchanged profitability. This top league of asset managers also recorded the highest net new money inflows, while small and mid-sized asset managers in particular achieved below-average profits – an indication of the continuously increasing concentration of the industry, which was already on a high level to start with.
The study’s various simulation calculations show that the profitability of the entire industry will continue to decline even under moderately positive assumptions, if no decisive countermeasures are taken. The ongoing COVID-19 pandemic with its expected negative economic effects across the globe is one factor among several that is exacerbating the situation, although developments on the financial markets are currently still being blurred by the flood of money released by governments and central banks. The long-term consequences are likely to put further pressure on European asset managers in the future, even when assuming the consequences of the recession to be moderate.
ESG-compliant asset management becomes the new standard
According to the authors of the study, asset management providers aligning to ESG (environmental, social and governance) criteria will become the new industry standard. More and more successful companies are actively integrating ESG categories into their investment strategies as a key component. For some time now, ESG funds have been collecting the most new money. ESG criteria thus remain a key driver of new money inflows in European asset management, alongside passive investments, e.g. via ETFs.
Nevertheless, when it comes to the asset managers’ ESG products, there is still a huge gap between expectations and reality. More than two thirds of the asset managers analyzed are rated rather poorly in terms of actual implementation. Maria Katharina Heiden, author of the study, explains: “Despite a high demand, the holistic integration of ESG criteria has so far been insufficient. The asset managers’ defined level of ambition is hardly ever reached. Currently, sustainable products are often only seen as a supplement to the traditional product portfolio. Asset managers have it in their own hands to take advantage of the opportunities that arise from repositioning their business models.”
Clear strategic positioning as a key success factor
Ultimately, the authors of the study believe that a clear strategic positioning remains the key success factor for greater profitability of European asset managers, especially in light of the unpredictable consequences of the COVID-19 pandemic. Norman Karrer, author of the study and Partner at zeb, concludes: “The pressure to act is increasing in the industry. If you want to be profitable in asset management, you need to have a clear strategic positioning for your business model, save costs and develop holistic approaches to integrating ESG requirements. A digital target image for the planned setup and efficient data management are indispensable to ensure a future-proof position in the medium term.”
The study is available here.
As a leading strategy and management consultancy, zeb has been offering transformation expertise along the entire value chain in the financial services sector in Europe since 1992. In Germany, we operate offices in Frankfurt, Berlin, Hamburg, Munich and Münster (HQ). Our international locations are in Amsterdam, Copenhagen, Kiev, London, Luxembourg, Milan, Moscow, Oslo, Stockholm, Vienna, Warsaw and Zurich. Our clients include European large-cap and private banks, regional banks, insurers as well as all kinds of financial intermediaries. Several times already, our company has been classed and acknowledged as “best consultancy” for the financial sector in industry rankings.
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