The golden years of growth for asset managers are likely to be coming to an end due to the turnaround in interest rates and fears of a recession.

Also because investors act more cautiously and judge performance more and more critically.

In a recent study, consultants from the Boston Consulting Group (BCG) attest that the fund industry has had one of the strongest developments in its history over the past 20 years.

Markus Fruehauf

Editor in Business.

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Between 2001 and 2021, the companies' assets under management grew from $31 trillion to $112 trillion.

In the past year alone, the increase was 12 percent.

That was well above the average annual growth rate of 7 percent over the past 20 years.

With a good 4 percent or 4.4 trillion dollars, wealth managers also recorded an above-average inflow of funds in 2021.

The good development on the stock exchanges was responsible for the growth in recent years.

The price gains in stocks and bonds increase the assets under management.

On the other hand, passive index funds, the so-called Exchange Traded Funds (ETF), made a significant contribution to growth.

According to the BCG study, passive products have grown four times faster than actively managed ones since 2003.

ETF products usually reflect stock market indices such as the Dax, while a fund manager selects the stocks for active funds.

This wants to be paid for it, which is why the fees for active funds are significantly higher than those for passive ones.

The largest ETF provider is the American investment company Blackrock, which is also number one in asset management.

In second place is the American Vanguard, which claims to have invented passive index funds.

The BCG consultants justify the switch of many investors to passive index funds with the fact that the investors wanted to save costs and bring in market returns.

According to them, the market is much more concentrated than that for active funds.

In the past five to ten years, almost 75 percent of all new capital has flowed to the top ten ETF providers.

Due to the turnaround in interest rates, Thomas Schulte, BCG specialist for asset management and one of the authors of the study, expects a more difficult market environment in the future when asked by the FAZ: "Rising interest rates will lead to more moderate growth prospects." On the one hand, they had a negative effect on the markets and thus directly also on the managed assets of the asset manager.

On the other hand, investors in this environment would be more cautious with the allocation of new money or would sometimes even withdraw money, especially in the bond area.

Consolidation is becoming an issue again

Not only has the growth in assets under management been impressive in recent years, but so has income.

They increased from $83 billion to $207 billion between 2004 and 2021.

Of this, $112 billion was attributable to market development alone, which means the additional fees resulting from the increased assets due to higher prices.

Here, too, BCG expert Schulte expects a headwind: In the current environment, it must be assumed that the income from market development will be significantly lower in the short term than in previous years.

The further development of current geopolitical crises and their consequences also played an important role.

According to Schulte, the fundamental drivers for ETF growth are still intact.

"Therefore, we assume that these will continue to gain market share," he adds.

However, in a difficult market environment, investors would pay even more attention to the performance delivered by an active manager.

This offers successful managers the chance to take over market shares from less successful managers.

“In the current environment, the wheat will be separated from the chaff more,” Schulte expects.

He anticipates that consolidation among wealth managers will pick up momentum again as market performance slows.

So far, the profitability of the industry has been high in comparison.

Operating margin was 38 percent in 2021.

According to Schulte, even smaller houses often earn enough money.

The basic strategic relevance of the consolidation was clear, but the specific pressure to act was only moderate in view of the good market development, says Schulte.