The global asset management industry witnessed a remarkable resurgence in 2023, with total AUM soaring to nearly $120 trillion, a staggering 12% annual increase. This impressive growth, however, conceals the industry's underlying vulnerabilities, as revenues rose a mere 0.2%, while costs escalated by 4.3%, resulting in an 8.1% decline in profits. To maintain a competitive edge, industry players must seize transformative opportunities via AI.
Asset managers face 5 fundamental pressures posing persistent structural challenges:
(1) Revenue Stagnation: Since 2005, nearly 90% of the industry's revenue growth has been driven by market appreciation, a trend that is unlikely to sustain future growth to the same extent.
(2) Passive Fund Dominance: Passive products continue to capture the lion's share of net flows, attracting a staggering 70% of total global mutual fund and ETF net flows (~ $920 billion) in 2023, a sharp rise from the 57% captured between 2019 and 2022
(3) Fee Compression Acceleration: The average fee in 2023 stood at 22 basis points (bps), a decline from 25 bps in 2015 and 26 bps in 2010, reflecting the accelerating pressure on fees
(4) Rising Costs: Costs have escalated by approximately 80% since 2010, growing at a compound annual rate of 5%, further straining profitability
(5) Product Innovation Struggles: Despite asset managers' efforts to develop new offerings, only 37% of mutual funds launched in 2013 remained in existence by 2023, highlighting the challenges in sustaining innovation.
To assess the industry's readiness for the AI revolution, Boston Consulting Group (BCG), Investment Company Institute (ICI) and the CFA Institute, conducted a global survey of asset managers in Q1 2024. The benchmark includes 57 asset managers representing > $15 trillion in AUM, and the findings are both promising and revealing: 72% of respondents believe that generative AI (GenAI) will have a significant or transformative impact on their organization within the next 3-5 years. 66% have made GenAI a strategic priority for their business. 75% are actively dedicating capital and human resources for GenAI deployment in the short term, with 29% committing a significant portion of their innovation budget. However, only 16% have fully defined a strategy and are working on implementing it throughout the business.
"Generative AI opens up tremendous potential for innovation within the asset management industry," asserts Peter Czerepak, an MD and senior partner at BCG. "Achieving results will require strategic thinking and the ability to execute at scale. With traditional sources of growth slowing down, it's imperative for firms to move forward on this journey."
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