The Global Asset Management Industry Thrived During the Pandemic — And Not Just Because of the Bull Market

Although long-term challenges remain, asset managers have exploited new opportunities in product development, ESG, and emerging markets to produce solid growth in assets.

Hollie Adams/Bloomberg

Hollie Adams/Bloomberg

The global asset management industry is emerging from the pandemic performing far better than most people expected. Whether or not their success is attributable to the years of planning the top firms have done to face down pre-Covid headwinds like declining fees, asset managers have done everything from developing lower cost products to reach new clients to implementing cost-cutting technologies to better compete during the Covid-19 pandemic, according to Cerulli Associates’ annual global markets report.

In fact, since 2020, managers have dealt effectively with existing challenges, like fee compression, macroeconomic uncertainties, international relations, and a volatile regulatory environment. On top of that, they’ve managed pandemic-induced hurdles, including market volatility, low interest rates, inflation, and changing work environments. Overall market growth and the expanding middle class, which is becoming much more financially literate, in developing countries also helped swell assets under management. The end result is that Cerulli expects year-on-year growth of assets under management to be 5.8 percent in 2021.

In the U.S., the mutual fund industry net revenue increased from $96.6 million to $106.1 million from 2016 to 2020. By 2025, researchers expect the industry to reach $131.7 million in net revenue, which includes firms’ share of management fees.

Managers also benefitted from the increase in savings as people stayed home and new interest in investments from younger people. Both are opportunities for managers who can create appealing products and educate people about the benefits of long-term investments, according to Cerulli.

In the U.S., mutual fund managers were hit hardest with demands for fee compression. Managers turned to lower-cost products to remain competitive in the global market. In fact, 88 percent of product executives in the U.S. said they plan to prioritize development of products other than traditional mutual funds to bring costs down, including exchange-traded funds, collective investment trusts, and alternative product structures.

“We see all-in cost to the investor going down, because managers are competing on cost,” Brendan Powers, associate director at Cerulli, told Institutional Investor. “They’re creating fee waivers. We also see more use of lower-cost mutual fund share classes.”

The industry has continued to flourish, despite lockdowns and Covid-19 surges. In 2020, the global asset management industry grew by 4.1 percent; in 2021, researchers predict growth of almost 6 percent.

“If you had asked me what would happen in June 2020, I would’ve said we would be lucky to be flat in terms of growth,” Powers said. “But markets really accelerated into the second half of 2020 and, as a result, it was pretty good year for the U.S. asset management industry.” Still, those numbers are dwarfed by 2019’s growth rate of 10.3 percent year-over-year, according to Cerulli.

To continue to compete, Cerulli expects managers to move into different investment strategies in the next few years. For instance, managers will continue to expand environmental, social, and governance investment strategies in Europe: In Italy, 30 percent of managers surveyed said they expect high demand for sustainable investments. France is expected to be one of the fastest-growing green investment markets in the world. In the U.S., managers are a bit slower to fully integrate ESG into portfolios, but it’s coming, said Powers.

“In the U.S., we’ve seen asset managers really start to buy into ESG research and begin to understand how they can incorporate it into their business,” Powers said. He also noted that there’s been a much stronger focus on ESG initiatives from large institutional investors and managers than from managers catering to retail investors.

In the next few years, Cerulli analysts expect a minor decrease in assets under management in equities and a slight increase in AUM in fixed income. Both shifts are expected to be less than two percentage points.

“Many of the asset managers Cerulli interviewed in Europe have seen rising interest in private markets, particularly private equity and private debt,” the report said. “This interest is being driven by sophisticated investors such as private banks that are shifting their focus to private investments and giving high-net-worth individuals improved access to private assets.”