Asset Managers’ Shrinking Margins Are Nearing 2009 Levels

Industry assets under management have climbed for three years in a row – but margins have fallen as fees plummeted.

Illustration by II

Illustration by II

Evidence that the traditional asset management industry is hurting continues to pour in.

Preliminary data on global public asset managers’ performance in 2018 shows that operating margins have fallen to 29 percent, in line with margins seen after the financial crisis, according to strategic consultant Casey Quirk. This marks a decrease from margins of 31 percent in 2017.

The decline in margins occurred even as assets under management for the industry increased by an average of 6.9 percent annually from 2016 through 2018. Over the same period, margins declined by 5.2 percent annually on average, according to Casey Quirk’s analysis of proprietary data and public information on more than 30 firms.

One of the culprits behind the shrinking margins is fees. The price tags for both active and passive strategies declined by 5 percent annually on average over that time period, according to Casey Quirk. In the prior three-year period, from 2013 to 2015, passive fees fell by an average of 3.5 percent each year, while active fees decreased by 2.5 percent annually.

Profits for both public and private asset managers were an estimated $93 billion last year, according to Casey Quirk.


“Historically, asset growth and profit growth were highly correlated,” said Amanda Walters, senior manager at Casey Quirk. “That’s not necessarily the case anymore. Your asset base may be up, but it could be in low fee areas, and at the same time, your cost base is still rising. Asset growth is an outmoded way to think about the industry.”

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In the two years after the 2008 financial crisis, operating margins for asset management firms were 28 percent on average. Between 2011 and 2013, they rose one percentage point each year, reaching 31 percent in 2013. Margins hit a post-crisis high of 34 percent in 2014 before starting to fall again in 2016.

Walters said that she remains optimistic about the industry even as a number of managers have announced cost-cutting initiatives that have included layoffs. “2018 was a more difficult year from a margin and revenue perspective, but we’re still seeing firms reinvesting in their businesses,” she said. “Many firms are cutting costs across the board, but they are actually using the capital to reinvest in other parts of the organization, whether that’s tech or globalization efforts.”

M&A bankers, at least, might be cheered by Casey Quirk’s analysis. Although asset managers have long talked about merging with or buying competitors to gain new capabilities, client segments, or scale, prices for acquisitions have been high. But between 2017 and 2018, multiples and valuations for publicly traded asset managers came down by every measure, including market capitalization, enterprise value, and price-to-book value. Stock prices alone declined by 31.7 percent, while enterprise value-to-EBITDA dropped by 43.5 percent.

“That’s a potential catalyst for M&A,” Walters said.