Asset Managers Face Tough Path to Rebuild Client Trust in Wake of Financial Crisis, Says Report by The Boston Consulting Group

NEW YORK, NY--(Marketwire - November 10, 2008) - Global asset managers have largely weathered the subprime crisis but must take strong steps to regain the faith of their clients and forge creative strategies that will enable them to emerge as stronger players, according to a report released today by The Boston Consulting Group (BCG).

The new report, "Winning Strategies in Uncertain Times: Global Asset Management 2008," features a thorough analysis of the trends that are shaping the asset-management industry for all types of players in different regions, as well as a comprehensive market-sizing effort encompassing more than 30 markets. The report, based on BCG's sixth annual study of the global asset-management industry, pays special attention to the actions that players need to take in order to gain leading market positions in these uncertain times.

According to BCG, key factors for success in rebounding from the subprime crisis will be better addressing client needs through improved distribution practices and enhanced risk management, as well as containing costs. It will also be critical for asset managers to explore new growth opportunities, particularly in Asia-Pacific and Brazil. Details on these initiatives are outlined in the report.

"Financial upheavals such as the subprime crisis present opportunities, not just threats, to players that develop the most robust business models and the most creative strategies," said Kai Kramer, a Frankfurt-based partner and a coauthor of the report. "Leading players, in fact, use highly uncertain times to their advantage, gaining market share and competitive edge over slower-moving rivals that simply try to wait out crises and hope for the best."

Despite the subprime contagion, which spread during the second half of 2007, significantly cooling down what had been a solid first half for asset managers, the year overall was nonetheless relatively strong. But 2008 has been tremendously difficult amid hypersensitive markets and extraordinary events on Wall Street and in other financial centers in the early autumn -- and 2009 promises to be at least as challenging. That said, the fundamentals of the asset-management business remain positive, and players need to focus not only on weathering the crisis but also on positioning themselves for the next growth phase, BCG says.

"It is safe to say that opportunities for asset managers still abound," said Philippe Morel, a Paris-based senior partner and a coauthor of the report. "For example, many investors, having moved into cash vehicles as a safe haven, will be looking to put those funds back into actively managed investment products when confidence in the market fully returns, however long that may take. Aging populations will still need their retirement funds looked after. Potential profit pools in many regions, especially Asia-Pacific, are growing."

According to the report, the value of professionally managed assets rose globally in 2007 by 13.9 percent to $58.9 trillion. Net of currency effects, growth in assets under management (AuM) would have been 10.3 percent. On a regional basis, AuM growth in the Asia-Pacific region (net of currency effects) surpassed that in Europe. China, for the first time, broke into the ranks of the top ten global markets with roughly $900 billion in AuM at the end of 2007. China may not maintain that status in 2008, given the precipitous fall of its equity market.

BCG research shows that the global share of core asset-management products -- actively managed equity and fixed income, plus money market vehicles -- was 74 percent in 2007. About 8 percent of global AuM was allocated to passive fixed-income and equity funds, still six times as much as the amount allocated to exchange-traded funds (ETFs). But ETFs are growing about three times as fast as other passive products. Innovative or alternative products (including real estate, private equity, hedge funds, and other categories) accounted for about 16 percent of professionally managed assets.

The report says that although the current focus of nearly all asset managers is rightly centered on reinforcing risk management and managing costs, asset managers must also look ahead to how the competitive landscape will evolve. In particular, there may be more opportunities for mergers and acquisitions in developed markets following the subprime crisis -- amid low valuations for listed players and the desire of some large banks to divest their asset-management divisions in order to refocus on their core activities. Also, it remains true that strong, long-term growth can readily be attained through exploring new or emerging markets such as those in Asia-Pacific and Brazil -- although these regions also suffered from the crisis this year. But asset managers must keep in mind that Asia-Pacific markets are highly diverse, requiring distinct approaches and strategies.

To receive a copy of the report or arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group

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