Three winning strategies are emerging in the US asset-management industry, and firms that pursue any of them are twice as profitable, on average, than those that don't. Moreover, the strategic approaches firms choose will be increasingly important as heightened competition and the slowing growth rate of new asset flows make today's enviable profit levels more challenging to maintain.
Such are the findings of a survey of 68 US retail and institutional asset managers, representing some $5 trillion in assets under management (more than one-quarter of the industry). The survey, carried out in 2005, is the fourth in an annual series that began in 2001. It includes a balanced mix of firms—for instance, retail and institutional, large and small.1
On the surface, prospects for US asset managers are rosy: average profit margins reached 28 percent in 2004, two percentage points higher than in 2003 and three points above the bear market's trough, in 2002. But we found that, on average, the growth of new asset flows trailed GDP growth for the fourth year running, largely as a result of increased competition from hedge funds and other market participants. In fact, the share of new flows held by traditional managers has...