European asset managers are struggling against fortune. The sector’s average profits fell in 2001¹ for the first time in years—hardly surprising given the general economic slowdown. But our latest survey of these companies² reveals that a considerable number have failed to respond adequately to the changed economic climate. Some European asset managers have made sharp adjustments, but investment strategies geared to growth are still common and not all of the com-panies have their costs under control. As a result, one in five of them operated at a loss in 2001. With no end in sight to the global economic cooling, many asset managers need to get a grip on their costs by streamlining their operations.

In 1999, we began surveying this young European industry to determine, for instance, the profitability of different customer segments in different countries. The first two surveys, based on data from 1998 and 1999, respectively, showed an industry profiting hugely from the scramble for equities. Most participants still reported healthy profits in 2000, but a marked change emerges from the latest figures, drawn from 84 European asset-management businesses,³ with €3.3 trillion ($3.5 trillion) of assets under management—representing 52 percent of the European...