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Traditional Asset Managers Enjoyed a Solid 2021 — But Alternative Firms Outperformed by a Wide Margin
Firms with an emphasis on alternative strategies saw a median revenue growth rate of 47 percent in 2021, 29 percentage points higher than traditional firms.
While revenue for publicly traded asset managers in the U.S. and Canada saw another record year of growth in 2021, alternative managers stole the show.
According to an analysis of 17 publicly traded asset managers — each with over $100 billion in assets under management — by global asset management strategy consultant Casey Quirk, the aggregate revenue growth rate in 2021 was 43 percent. The total revenue for the 17 surveyed managers, which included 11 traditional and six alternative firms, reached $84 billion last year, up from about $59 billion in 2020.
Casey Quirk attributes much of the revenue growth to double-digit equity market appreciation in the U.S. and other developed markets. Amanda Walters, a principal at Casey Quirk, said that revenue growth is typically driven by AUM growth — which includes market appreciation and net new flows — and any changes in fees or implied fees. “A couple of things happened this past year,” Walters told Institutional Investor. “One was that we just had really strong equity markets. Two was that we had relatively stable organic growth or net new flows into the industry.”
Overall, total AUM of the observed managers grew 15 percent in 2021, reaching around $20 trillion, while net new flows into traditional firms hovered at a stable 1.2 percent and median fee capture grew by 7 percent. While all publicly traded managers experienced revenue growth last year, alternative managers — those with a focus on the private markets — enjoyed a stellar median revenue growth rate of 47 percent. Meanwhile, traditional managers, who have greater exposure to publicly-traded stocks and bonds, saw median revenue growth of 18 percent.
“This is a persistent trend we’ve seen over the past few quarters,” Walters said. “The biggest driver is that there’s increased client demand for yield. As a result, we’ve seen flows going into private market strategies at a faster rate than public market strategies.” Walters also noted that the fees that private market managers charge for their services are often much higher than those at traditional firms, which further contributed to the revenue growth enjoyed by alternative firms in 2021.
Walters added that when revenue increases, expenses typically go up as well. This was the case in 2021, with expense growth at the observed firms increasing by 15 percent, driven largely by compensation growth. “In a time when the war for talent is certainly on in asset management, we saw a lot of firms paying out their people pretty well, and we’ve seen new hiring happen, which leads to that overall compensation growth as well,” Walters said.
In a statement, Scott Gockowski, a senior manager at Casey Quirk, said that traditional firms have begun to take steps to remedy the growth discrepancy. “The gap in financial performance between traditional and alternatives firms continues to support robust M&A activity,” he said, “with traditional firms seeking to acquire alts capabilities.”