Asset managers are braced for a plunge in the value of assets this year after notching bumper returns in 2021 that pushed the total value of managed assets to $112tn globally, new data has revealed.
Buoyant equity markets and a surge in inflows bumped total assets under management up 12 per cent in 2021, well ahead of the average seven percent growth seen on average in the previous two decades, according to a report by consultancy giant Boston Consulting Group (BCG).
Profits margins were boosted to 38 per cent, up from 36 per cent the previous year, with average AuM growth outpacing rising costs.
But analysts at BCG said the industry now faces a reckoning as equity markets plunge amid soaring inflation and turbulence sparked by war in Ukraine.
“The incredible market run that has fueled the performance of the asset management industry over the past 15-plus years has been a double-edged sword,” said Chris McIntyre, a BCG managing director and partner.
“On the one hand, it has provided strong tailwinds for the sector, but it has also challenged innovation, allowing the market to be dominated by legacy products that benefit from the compounding effect of returns on underlying assets.”
McIntryre said the turbulence in the equity markets now proved a “opportunity as well as a challenge” as the industry adapts.
The research comes after investors have scrambled to slash their exposure to equity markets this year in the wake of Russia’s invasion of Ukraine and soaring inflation.
Cash balances among fund managers hit 6.1 per cent in early May, the highest level since September 2001, while equities are at their most underweight since May 2020, according to Bank of America’s fund manager survey.
Analysts at Barclays warned today that the sell-off could continue this year, with global mutual funds investors set to sell equities worth a further $350bn unless fears of recession diminish.