Rising market values lifted the AuM of the global fund management industry but it wasn't able to translate this into comparable revenue and earnings growth, BCG said in its annual report.

Last year was the first one since the 2008 financial crisis that traditional asset managers suffered revenue and earnings falls, as rising portfolio values did not offset pressures on margins amid a shift to low-cost passive investing and regulatory burdens, a study showed.

Revenues fell 1 per cent from 2015 to 2016, the report said. Over the three years from 2013 to last year, net revenues were 26.7 basis points, down from 29.3 bps, according to a global study by Boston Consulting Group.

With regulators such as the UK's Financial Conduct Authority chiding asset management recently for lacking competitiveness and price transparency - suggesting even sharper competition ahead - the BCG study will make for sobering reading for the sector.

The figures also suggest, BCG said, that the recent trend of advisors shifting clients into low-cost, passive investment vehicles and away from Alpha-chasing, higher-cost active fund management is affecting margins.

Globally, across all countries, assets under management reached $69.1 trillion, rising by 7 per cent in 2016, a marked improvement from 2015 when the year-on-year increase was only 1.0 per cent, and it beat the average annualized rate of 5 per cent from 2008 through 2014.

"But growth figures can be deceptive. The global increase in AuM was produced largely by the rising value of investments in buoyant financial markets. Net new flows - the industry’s lifeblood - were a tepid 1.5 per cent of beginning-of-yearAuM, little changed from recent years," the report said.

"Annual inflows seem unlikely to return to the pre-2008 levels of 4 per cent to 6 per cent except in China and a few other high-growth markets," it said.

Regional performance
Looking at growth by region, China was the notable exception to the modest growth picture for AuM, alongside Brazil. Each market accounted for most of the growth in its region: Asia (excluding Japan) and Latin America, respectively.

The North American market, dominated by the US, remains the world’s largest, with 48 per cent of global AuM, but it is growing slowly. "Despite solid gains in domestic equity prices in 2016, US AuM increased just 5 per cent as the market suffered from net outflows of –0.3 per cent," it said.

BCG said the US institutional segment performed slightly better than retail, with 6 per cent and 5 per cent AuM growth respectively. Yet net outflows were higher: –0.4 per cent for institutional versus –0.1 per cent for retail. Retail benefited from continued positive flows from IRAs, partly compensating for outflows in other retail segments.

The next-largest developed markets, Japan and the UK, both had weak net flows of 1 per cent. In Japan, which suffered from low equity returns and the predominance of fixed income in investment portfolios, AuM grew by 3 per cent.

In the UK, by contrast, currency devaluation following the Brexit vote last June, along with buoyant financial markets, compensated for weak net outflows: AuM grew by 11 per cent.
European markets generally saw solid gains from net flows in 2016 - in particular, more than 3 per cent in Germany, Italy, and Spain.