A slide in public markets resulted in global AUM falling by 10% to $98tn in 2022, the second largest single-year fall since 2005, according to the group’s Global Asset Management 2023: The Tide Has Turned report.

  • Public markets slide led to 10% drop in global AUM in 2022 – BCG report
  • Alternative assets likely to generate 7% CAGR in next five years
  • Asset managers need to reduce costs, increase alternatives investments to preserve profit growth

May 16 (Preqin News) - Asset management companies should boost their investments in alternatives to help preserve performance levels as higher interest rates, a shift in central bank policies, and market uncertainty threaten to halve profit growth, according to Boston Consulting Group (BCG). 

A slide in public markets resulted in global AUM falling by 10% to $98tn in 2022, the second largest single-year fall since 2005, according to the group’s Global Asset Management 2023: The Tide Has Turned  report, published on Monday. Lacking the supportive central bank policies that have helped boost public market performance, and combined with other pressures facing the industry, asset managers’ profit compound annual growth rate (CAGR) will drop to around 5%, approximately half the average of recent years, unless they shift approach, the report’s authors say.

“The asset management industry has reached a turning point, requiring leaders to rethink the way their organizations operate if they want to return to the profit growth of years past,” said Chris McIntyre, BCG Managing Director and Partner, and co-author of the report. “The markets are full of economic uncertainties, and technology is rapidly transforming the way financial services firms serve their clients.”

Alternative assets accounted for 21% of global AUM but generated 50% of global revenue in 2022, according to the report, and are likely to deliver a CAGR of 7% over the next five years. BCG identified private debt and private equity as substantial drivers of growth, with revenues rising by 9% to 10% annually over the period.

In addition to increasing exposure to alternatives, firms will need to optimize costs and increase utilization of technology to enhance client personalization, according to the report. BCG estimates that asset management firms will need to reduce costs by 20% overall and amend their revenue mix to generate at least 30% from higher-margin products, in order to maintain their 10% historical profit growth rate.

For firms seeking to enter the alternatives market, the report identified four potential options: building in-house; purchasing several firms and ‘using an affiliate or boutique structure’; acquiring and independently operating an alternatives firm; and establishing partnerships.

The report was published on the same day that Santander Asset Management said it will launch a new alternatives asset manager to cater to client demand. In a release announcing the move, the new unit’s CEO, Luis García-Izquierdo, said: “In the current context of high inflation and market uncertainty, alternative investments help reduce overall risk and maximize returns over the long term. With institutional and individual investors yet to fully tap into private markets, there’s a clear opportunity to grow.”

Firms looking to acquire an alternatives capability may find themselves in competition with those already active in the space. TPG announced on Monday that it will acquire Angelo Gordon, a New York-headquartered firm that focuses on credit and real estate. Earlier this month, New York-listed insurance and investment group Prudential Financial said that it had acquired a majority interest in private debt fund manager Deerpath Capital.

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