Money managers with $100 trillion ahead of the bull market

Oct 23
Money managers have observed a tectonic shift in investor desire for less-expensive passive strategies over the past ten years in the $100 trillion asset management business. Now they must deal with something even worse: the unheard-of bull markets that supported their investments and concealed flaws that could endanger their lives may soon be a thing of the past.

The Boston Consulting Group estimates that, rather than any ability to bring in money from new clients, over 90% of the additional income produced by money managers since 2006 is solely attributable to market expansion.
Many business executives and advisors are now warning that the industry's gradual deterioration will soon reach a tipping point, another bear market and that many of these enterprises will be irreparably damaged.

"This is the final act," declared Ben Phillips, chairman of Broadridge Financial Solutions Inc.'s global wealth management advisory unit, "as many firms that have been stranded for decades will no longer be able to coast." These companies must adapt, and they will be responsible for doing so.

Rowe, Franklin, Abrdn, Janus Henderson Group Plc, and Invesco Ltd. have seen customer funds withdraw more than $600 billion since 2018. This is greater than all the funds under the management of Abrdn, one of the biggest independent businesses in the UK.

The causes of the companies' issues are well known: investors are shunning mutual funds in favor of far less expensive passive strategies managed mostly by industry heavyweights BlackRock Inc., Vanguard Group Inc., and State Street Corp., which will put pressure on the revenues and earnings of smaller firms.

Even the $9.1 trillion colossus BlackRock is experiencing some pain as geopolitical concerns and rising interest rates become the norm. Clients withdrew a net $13 billion from long-term investment funds in the three months leading up to September, the first outflow since the pandemic started in 2020.

According to Bloomberg, passive products are becoming so popular that by the middle of the year, they will make up 50% of all mutual fund and ETF assets in the United States, up from 47% in 2022 and 44% in 2021. Ten years ago, this percentage was only 27%.
In addition to having to battle index robots, investors now have to contend with cash, where they want to hold their money as long as interest rates are high.

Acquisitions, asset class splits, and fee reductions are just a few of the numerous changes taking place at the industry's mid-tier organizations, which may only serve to postpone the inevitable.

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