G A M
Building on Success
The Boston Consulting Group (BCG) is a global management consulting firm and the worlds leading advisor on
business strategy. We partner with clients in all sectors
and regions to identify their highest-value opportunities,
address their most critical challenges, and transform their
businesses. Our customized approach combines deep
insight into the dynamics of companies and markets with
close collaboration at all levels of the client organization.
This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and
secure lasting results. Founded in 1963, BCG is a private
company with 74 oces in 42 countries. For more information, please visit www.bcg.com.
Building on Success
G A M
Kai Kramer
Brent Beardsley
Hlne Donnadieu
Monish Kumar
Andy Maguire
Philippe Morel
Masahide Ohira
Gary Shub
Tjun Tang
July 2011
bcg.com
Contents
Introduction
10
10
11
17
19
21
21
22
27
28
B S
Introduction
T B C G
n 2010, the global value of professionally managed assets rose by 8 percent to $56.4 trillion.1
(See Exhibit 1.) This increase followed a gain of
13 percent in 2009 and a decline of 17 percent in
2008. Global AuM thus surpassed the previous
year-end high of $56.2 trillion achieved in 2007, thanks
to stronger-than-expected growth.
21
11
28.5
16.7
13
13
10.4
18
1
24
30
22
15
15
13
26
3.1
5.7
5.2
17
11
4.8
5.3
10
13
16
11
11
27.6
22.5 25.5
8
13
56.2
46.5
52.4
56.4
32.8
Annual growth,
2008 (%)
Annual growth,
2009 (%)
Annual growth,
2010 (%)
Institutional AuM
+9%
$billions
23,523
CAGR (%)
32,717
21,040
Insurance
7,173
10,653
2,427
5,230
11
4,527
12
2010
10,036
31,332
7,986
28,235
7,490
18,250
Mutual 11,299
funds
CAGR (%)
+7%
$billions
2007
22,837 2010 2010
7,024
8,915
Unit-linked
insurance
2,477
2,262
1,921
Unit-linked
pensions
5,199
Private
banking1
4,548
3,578
4,033
2007
2008
2009
3,835
4,709
Pensions 18,418
14,882
Corporations
Nonprofits
Governments
Banks
2,270
1,480
1,803
1,573
2007
2,249
1,281
1,607
1,192
2008
17,204
18,756
2,389
1,288
1,804
1,157
2009
2,431
1,357
1,921
1,119
2010
2
3
2
11
2
5
7
3
Europe
241
200
116 118
35
Asia
Net sales ($billions)
58
60
47
17 23 23 17
100 88
24
0
9
37
116
96
70
58
0
78
30 27
78
47 46
27
10
4
25
57
200
539 525
600
Equity
2009
Fixed
income
Money
market
2010
Q1 2011
0
9
1
2
6
9
16 11
35
33
Equity
Hybrid
Other
Fixed
Money
ETF2
income
market
60
205
90
300
ETF1
Hybrid
30
200
13
23
11
100
400
18 18
3
Equity
Hybrid
Other
Fixed
Money
income
market
ETF
Sources: Investment Company Institute (ICI); European Fund and Asset Management Association (EFAMA); Lipper FMI; BlackRock, ETF Landscape;
press reports; BCG analysis.
Note: Mutual fund sales correspond to net sales of UCITS funds in Europe.
1
Corresponds to value of net issuance of ETF shares.
2
Through February 2011.
B S
30.6
29.0
29.8
40
35
20
34
33
31
30
0
2003 2004 2005 2006 2007 2008 2009 2010
27
20
20.3
19.2
18.6
10
20.1
20.7
20.2
20.1
19.9
0
T B C G
In general, during a second year of recovery from the socalled Great Recession, the global asset-management
business has continued to evolve in many waysas we
shall see in the next chapter.
their cost bases increased faster than revenues in absolute termswith some experiencing overall cost increases of 20 percent or more.
B S
espite the recovery, asset managers cannot aord to become complacent. Investors are even more demanding, product
trends are continuing to shi , the regulatory climate is tightening further, and
competition is intensifyingwith dierent markets posing dierent challenges. In addition, factors such as
chronically low interest rates, the risk of inflation, potential market bubbles, and lingering market volatilitya
reflection of a macroeconomic climate that is still unsettledmust be dealt with.
In this chapter, we will take a closer look at the major
trends aecting asset managers. Some of these patterns
are ongoing, while others represent new shis in the landscape.
probing into managers investment processes and philosophies, and questioning traditional performance benchmarks (especially in fixed income). More than ever, asset
managers need to have a tight, compelling investment
proposition.
Asset managers must also cope with factors such as regulatory changes that influence their clients objectives and
low interest rates that hinder the ability to achieve desired yields. For example, Solvency II legislation will further tighten the constraints on European insurersbringing new challenges to their asset managers.
Another highly sought capability is expertise in liabilitydriven investment (LDI). Penetration of LDI strategies
rose significantly from 2007 through 2009, and although
it slowed somewhat in 2010, LDI is currently being used
by close to 40 percent of pension funds in the U.K. and
more than 90 percent in the Netherlands. In the U.S., the
market for full LDI solutions is underdeveloped relative
to those countries, although roughly 50 percent of U.S.
pension funds are currently employing some form of LDI
strategy.
Private Investors. Neither wealthy clients nor those with
more modest sums to invest have relaxed their attitudes
toward asset managers, despite more favorable equity
markets. Private investors are increasingly looking for solutions that eectively balance risk in a still-uncertain environment. Indeed, following the losses absorbed during
the crisis, many investors continue to lack confidence in
mutual funds.
Such wariness has particularly been the case in countries
where risk aversion has traditionally been relatively high.
In Germany, for example, there has been just a trickle of
T B C G
flows into mutual funds recentlyapart from a few highly popular funds, ETFs, and Riester related funds (which
have some tax advantages). And in China, the combination of losses experienced during the crisis and shortterm economic cooling measures has prompted continuing outflows from mutual funds.
Broadly speaking, it is fair to say that both institutional
and private investors are maintaining a very cautious outlook on investment markets. BCGs third annual global
investor survey, carried out in March 2011, provided ample evidence. (See the sidebar BCG Survey: Investors
Today Are Cautiously Optimistic.)
BCG Survey
Investors Today Are Cautiously Optimistic
During the first quarter of 2011, BCG invited some 460
professional investors and sell-side equity analysts from
Europe and the U.S. to participate in an online survey. The
survey is the third in a series that BCG has conducted
since 2009, probing investors views on the global economic environment and priorities for business value creation. Below are the key findings of the survey. (For more
details, see All That Cash, BCG article, May 2011.)
Investors believe that the worst is over, but they continue to expect a low-growth environment for at least
two more years. Additional sentiments include the
following:
The economic recovery has been faster than expected.
A double-dip recession is unlikely.
Given their alpha value orientation, investors currently prefer that companies focus more on organic
growth than on acquisitions, exercising prudence in
free cash flow and capital deployment.
Any acquisition must be strategically sound; otherwise,
cash should be returned to investors.
Higher dividends are generally preferred over share repurchases.
Management credibility and three- to five-year revenue-growth potential are the most important criteria
for investors in deciding which financially healthy
companies to invest in.
The potential for improvement in return on invested
capital (ROIC) is very important.
Undervaluation and near-term EPS growth are less important than in the 2010 survey.
Investor focus continues to evolve toward a value orientation and a balance between long- and short-term
investments.
B S
Exhibit 5. Alternative and Passive Products Should Keep Outgrowing Traditional Active
Products
CAGR, 20102014 (%)
25
Passive products/ETFs
20
ETFs
Alternative products
15
10
Passive fixed
income
Traditional
active products
Passive equity
Infrastructure
Hedge funds
Commodities
Real estate
Absolute return
(including REITs)
Balanced
Private equity
5
LDI
Fixed
income
Structured
Quantitative
Active
equity
Money market
50
100
150
1
Net revenue margin (basis points)
Traditional active
Passive
Alternative
T B C G
Exhibit 6. Growth Has Been Strong in Bonds, Emerging-Market Equity, and Solutions Funds
Net sales of mutual funds by strategy ($billions)
United States
Europe
2010
20052010
119
Core bonds
2010
Core bonds
465
20052010
Asset allocation
51
High-yield bonds
40
Global equity
139
Emerging-market equity
46
Target date
45
Target date
Emerging-market bonds
39
Corporate bonds
48
Foreign equity
32
World allocation
126
Emerging-market equity
29
Emerging-market equity
46
World bonds
32
Emerging-market equity
106
Global bonds
29
High-yield bonds
45
Emerging-market bonds
45
Foreign equity
247
243
79
Multisector bonds
25
Munis
Global equity
17
World allocation
24
Asset allocation
84
Asia-Pacific equity
12
BRIC equity
37
Commodities
19
World bonds
82
Flexible bonds
10
Commodities
18
Absolute return/long-short
17
Multisector bonds
78
Absolute return
Sector equity
14
54
Asia-Pacific bonds
16
Bank loans
0
Equity
Commodities
200 400 600
Bond
102
7
0
14
Convertible bonds
200 400 600
200
400
600
Other
51
27
26
69
28
25
57
European equity
26
9
3
6
14
63
20
40
60
14
6
63
7
80
3
11
11
72
30
0
18
20
61
22
11
85
25
18
15
57
Domestic equity
23
19
74
23
Bank loans
33
79
80
U.S. equity
32
71
Corporate creditEurope
Decrease
41
100
16
23
50
0
50
Percentage points
Increase
B S
equity risk. Indeed, the largely favorable bond environment that has existed for roughly two decades has wound
down. Lower expected returns and relatively high volatility may hurt future growth. And there are other questions:
Are debt-weighted benchmarks still appropriate? Will rising asset classes such as alternatives benefit as investors
shy away from bonds? The answers to such queries will
not be known for at least a few more years. In the meantime, we expect continued success for players that are able
to provide decent performance in fixed income.
A key structural development is the move to more customized solutions that are oriented toward specific outcomes or time frames, or that are explicitly linked to balance sheets or specific macroeconomic trends or both.
Such products include asset-allocation and target-date
oerings, as well as LDI. In Europe, for example, asset
allocation funds are becoming increasingly popular, accounting for 3 of the top 15 mutual fund strategies in
2010 in terms of net sales.
Moreover, in the U.S., target-date funds continue to expand substantially following an average growth rate of
Europe-domiciled funds
2
13
3
12
4
15
17
80
50
50
28
28
50
29
50
21
60
24
40
30
30
30
57
53
30
56
20
38
15
15
5
Proportion Share of
net sales
of funds
Equity
5
Proportion Share of
of funds net sales
Fixed income
15
5
Proportion Share of
of funds
net sales
Equity
15
5
Proportion Share of
of funds net sales
Fixed income
T B C G
Europe
%
4
$billions
2,500
+24%
$billions
1,000
800
600
1,500
1,000 1.3%
891
581
299
407
$billions
1,000
800
1.7% 2
+39%
400
2
+19%
400
705
1.1%
1
497
2007
2009
2005
2008
2010
2006
%
4
600
%
4
3.4%
2,000
500
200
1
0.4%
227 284
90 128 143
0 55
0
2005
2007
2009
2006
2008
2010
200
0.7%
69 87 71 104 136
0
0 58
2005
2007
2009
2006
2008
2010
CAGR
Sources: BlackRock research; BCG Global Asset Management Market Sizing database, 2011; BCG analysis.
B S
Exhibit 10. The ETF Market Is More Consolidated in the U.S. Than in Europe
The top three players in the U.S. have 85 percent of the ETF market
AuM, 2010
($billions)
Market share,
2010
(%)
AuM, 2009
($billions)
Growth in
2010
(%)
Net sales,
2010
($billions)
Share of
net sales, 2010
(%)
iShares
431.4
48
364.4
18
27.5
26
SSgA
176.8
20
149.8
18
11.7
11
Vanguard
148.3
17
92.0
61
40.5
38
PowerShares
41.5
33.6
24
3.4
ProShares
21.6
23.2
2.1
20
12.5
60
3.7
BNY Mellon
12.2
8.6
42
1.6
WisdomTree
9.9
6.4
55
3.0
Direxion Shares
6.6
5.0
32
2.1
705.4
26
106.6
Total market
891
The top three players in Europe have 71 percent of the ETF market
AuM, 2010
($billions)
iShares
Lyxor
Db x-trackers
Credit Suisse
Zurich Cantonal Bank
Commerzbank
Amundi
ETFlab
UBS
EasyETF
Source
Total market
Market share,
2010
(%)
AuM, 2009
($billions)
Growth in
2010
(%)
Net sales,
2010
($billions)
Share of
net sales, 2010
(%)
101.8
52.4
47.9
15.6
11.8
8.6
7.2
6.8
6.6
5.5
5
36
18
17
5
4
3
3
2
2
2
2
85.8
45.6
37.2
9.6
6.7
6.2
4.8
7.1
3.6
5.8
2.9
19
15
29
63
76
39
50
4
83
5
72
13.3
6.8
8.0
4.5
2.1
2.1
2.2
0.6
2.7
0.5
1.3
29
15
18
10
5
5
5
1
6
1
3
284
226.6
25
106.6
T B C G
changes in market structures and technology, further increase transparency and eciency, broaden the range of
products covered by MiFID I, and continue to bolster investor protection.
T B C G
Exhibit 11. Six Countries Have Shown the Fastest Growth in AuM
Compound annual growth in AuM, 20072010 (%)
20
Mexico
India
15
Chile
South Africa
10
Brazil
China
Hong Kong
Sweden
South Korea
Denmark
Taiwan
5
Austria Norway
Netherlands
Ireland
Canada
Luxembourg
Czech Republic
Middle
East
Finland
0
Poland
Australia
Singapore
Portugal2
Italy
Russia
Belgium
United
Kingdom
Germany
France
United
States1
Japan
Switzerland
Spain2
Greece2
15
1
Change in AuM in 2010
($billions; scale = $100 billion)
2
Developed markets
Western Europe
North America
Asia-Pacific
4
Emerging markets
Eastern Europe
Latin America
26
AuM, 2010 ($trillions)
Asia-Pacific
Africa and the Middle East
B S
T B C G
crystal-clear value proposition can be a true dierentiator. Asset managers need to review what they do best,
make it distinctive, and market it powerfully.
Focus more on the end customer. All too oen, retail asset managers have cared too little about private investors,
in eect perceiving distributors as their end customers. Indeed, relatively few players have fully exploited opportunities to better understand what private investors really
prefer in terms of products, services, and channels. Even
fewer have seized the opportunity to help distributors
comprehend the needs of the end customer. Amid intensifying competition, asset managers must dedicate the
necessary resources to do more in these areas.
On the institutional side, asset managers must better
adapt their oerings to the needs of the investorand
truly take the clients perspective. Institutions are increasingly interested not only in performance but also in higher levels of service in terms of customization of products
and clarity of reporting.
Enhance relationships with distributors. Asset managers must also forge better overall ties with the distributors that link them to the end customer, finding ways to
stimulate new demand for their products. As the battle
for shelf space heats up, they must ensure that their
products are getting sucient display. They can help
themselves by strengthening sales support in a number
of areas, such as providing better training on products,
backing up advisors on specific investment solutions, and
being an active thought partner with distributors with regard to new sales approaches.
Review and streamline the product portfolio. An ongoing struggle for many asset managers is the tendency
T B C G
B S
T B C G
that provide global exposure and oer monthly cash distributions have attracted heavy inflows.
When it comes to distribution, there is an increasing trend
toward open architecture. Large banks and major financial-advisory and wealth-management firms are opening
their networks to obtain access to distinctive products
oered by global asset managers. Smaller, regional banks
with open networks are gaining share in retail distribution.
Foreign Asset Managers Have a Stable 15 Percent Share of Retail AuM in Japan
Retail AuM in Japan by type of asset manager (trillions of yen)
69
64
11
(16%)
11
(16%)
41
6
(15%)
6
(15%)
22
(32%)
2004
8
(15%)
24
(35%)
2006
10
(16%)
Foreign players
9
(15%)
Domestic independent
managers
20
(31%)
Subsidiaries of domestic
banks
24
(38%)
Subsidiaries of domestic
securities companies
8
(15%)
17
(32%)
11
(27%)
18
(43%)
52
20
(38%)
2008
2010
B S
n conclusion, we oer several thoughts. First and foremost, the need for experienced, professional asset
management has never been greater. In the wake of
a financial crisis that not only destroyed significant value
but also damaged confidence in capital markets as well
as in many traditional investment beliefs, people are
lookingnow more than everfor sure-handed investment guidance and expertise.
Obviously, the current macroeconomic environment
has generated considerable doubt about the direction
that certain asset classes will take and how to optimize
product portfolios. Those who think that inflation will
markedly increase might think that real assets such as
commodities are very attractive. Those who believe that
growth will be higher than expected over the next few
years will favor equities. Those who worry that we may
sink back into recession may lean toward fixed income.
Overall, from a product portfolio standpoint, we may
T B C G
B S
Acknowledgments
First and foremost, we would like to
thank the asset management institutions that participated in our current
and previous research and benchmarking eorts, as well as other organizations that contributed to the
insights contained in this report.
Within The Boston Consulting
Group, our special thanks go to Akin
Akbiyik, Elif Arslan, Marcus Gensert,
Daniel McBee, and Andrea Walbaum.
Europe
Hlne Donnadieu
BCG Paris
+33 1 40 17 10 10
donnadieu.helene@bcg.com
Kai Kramer
BCG Frankfurt
+49 69 9 15 02 0
kramer.kai@bcg.com
Andy Maguire
BCG London
+44 207 753 5353
maguire.andy@bcg.com
Philippe Morel
BCG Paris
+33 1 40 17 10 10
morel.philippe@bcg.com
Asia-Pacific
Masahide Ohira
BCG Tokyo
+81 3 5211 0300
ohira.masahide@bcg.com
Tjun Tang
BCG Hong Kong
+852 2506 2111
tang.tjun@bcg.com
Monish Kumar
BCG New York
+1 212 446 2800
kumar.monish@bcg.com
Gary Shub
BCG Boston
+1 617 973 1200
shub.gary@bcg.com
T B C G
For a complete list of BCG publications and information about how to obtain copies, please visit our website at
www.bcg.com/publications.
To receive future publications in electronic form about this topic or others, please visit our subscription website at
www.bcg.com/subscribe.
7/11
Abu Dhabi
Amsterdam
Athens
Atlanta
Auckland
Bangkok
Barcelona
Beijing
Berlin
Boston
Brussels
Budapest
Buenos Aires
Canberra
Casablanca
Chicago
Cologne
Copenhagen
Dallas
Detroit
Dubai
Dsseldorf
Frankfurt
Geneva
Hamburg
Helsinki
Hong Kong
Houston
Istanbul
Jakarta
Johannesburg
Kiev
Kuala Lumpur
Lisbon
London
Los Angeles
Madrid
Melbourne
Mexico City
Miami
Milan
Minneapolis
Monterrey
Moscow
Mumbai
Munich
Nagoya
New Delhi
New Jersey
New York
Oslo
Paris
Perth
Philadelphia
Prague
Rio de Janeiro
Rome
San Francisco
Santiago
So Paulo
Seoul
Shanghai
Singapore
Stockholm
Stuttgart
Sydney
Taipei
Tel Aviv
Tokyo
Toronto
Vienna
Warsaw
Washington
Zurich
bcg.com