Passive Management Makes Asset Managers Cost Conscious

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The growth and adoption of smart beta offerings, exchange-traded funds (ETF) and other passive products are chipping away at the profit margins of asset management firms. In addition, as more large asset owners bring fixed income and equity management functions in-house, asset managers have to look further down the line for institutional investor clients. Key costs drivers continue to be sales and marketing staff, typically second behind investment management cost functions. According to PricewaterhouseCoopers’ (PwC) 18th Annual Global CEO Survey, which had 155 responses from asset management CEOs, 46% are targeting to cut costs in 2015.

Not all is bad for asset managers. In general, according to Park Alpha, the consulting division of the SWFI, the North American asset management industry continues to see revenue growth, faring better than lower margin businesses like banks and insurance companies. Thanks to quantitative easing (QE) by the major central banks and increases in some productivity, capital market appreciation has been a noteworthy driver of asset growth.


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