Money managers across the $100 trillion asset management industry have grappled with a significant shift in investor preference for cheaper, passive strategies over the past decade.
According to Boston Consulting Group, approximately 90 percent of the additional revenue generated by money managers since 2006 resulted solely from rising markets, not from their ability to attract new client money. Many senior executives and consultants now caution that the industry's gradual decline could swiftly transform into a perilous freefall. As reported by InvestmentNews, investors are shifting from mutual funds to far more affordable passive strategies, predominantly managed by industry giants BlackRock Inc., Vanguard Group Inc., and State Street Corp. This shift has caused industry-wide fee compression, placing pressure on the revenue and profit margins of smaller players.
Bloomberg News analyzed more than five years of money flows, fees, investment performance, revenue, and profit margins at the five firms. This analysis and industry trends highlight how active managers face more significant risks than ever. These five publicly traded firms oversaw over $5 trillion as of June 30 and have become household names in global asset management. The stock prices of all five firms reflect the state of the industry. Except for T. Rowe Price, all of these companies have seen their value decrease by at least a third since the beginning of 2018, while the S&P 500 has increased by about 60 percent.
Despite the hope that clients will return to actively managed stock and bond portfolios when market conditions become challenging, the downward trajectory appears irreversible. A new generation of CEOs in the active management sector must navigate these challenges. These new CEOs, a blend of industry veterans and outsiders hired to shake things up, face revitalizing sprawling legacy businesses that appear to contract monthly. They must also address expanding beyond their core focus on traditional, actively managed mutual funds.
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