The development of the European pensions industry and shifting demographics are set to boost EuropeÃ¢â¬â¢s institutional asset management industry, according to a new report from McKinsey & Co.
Ã¢â¬ÅLooking forward, demographic trends and changes in the behaviour of customers, who will increasingly complement their traditional pension schemes with personal savings, are predicted to favour the growth of asset management volumes in the long term,Ã¢â¬Â the consulting firm said.
Ã¢â¬ÅAnother shock may stem from the development of pension schemes throughout Europe, which could shift the balance of retail and institutional volumes by increasing the institutional share,Ã¢â¬Â it added, though it said there was no evidence of this yet.
The firm also found that, based on a survey of market participants, asset management profits were an average of 9.6 basis points in 2002, down from 12.1 basis points in 2001. But the number of unprofitable firms fell to 12% of the total, from 20% a year earlier.
The correlation of profits to the market downturn Ã¢â¬Åhas proved far higher than predicted even in the most pessimistic sensitivity simulations run in the late 1990sÃ¢â¬Â.
McKinsey said the fact that some asset managers, especially in the UK, had cut costs Ã¢â¬Åmay be a sign that the asset management industry is entering a new phase, where professionalism in managing the business is absolutely crucialÃ¢â¬Â.
It noted that retail asset management was far more profitable than institutional, generating 17 basis points compared to five basis points.
And scale is important, though only up to a point, McKinsey says. Ã¢â¬ÅThe winners are not necessarily the largest players, but those who can leverage their strengths at a scale that allows them to remain in the race with moderate costs.Ã¢â¬Â
The report was optimistic about the outlook. Ã¢â¬ÅIn spite of the steep decline in profitability, most asset managers could end up surviving the tough environment, with only a limited number being forced to exit the industry.Ã¢â¬Â
McKinsey surveyed 110 participants with a combined 4.5 trillion euros under management.