The ‘Disruption’ of Asset Management

Asset owners are turning to passive and multi-asset strategies in search of low cost and outcome-focused investments.

Nearly half of all asset managers suffered outflows in 2015 as investors consolidated their funds into passive and multi-asset strategies, according to a Casey Quirk by Deloitte survey.

The survey of more than 100 asset managers, conducted with consulting and data firm McLagan, found that index and multi-asset funds attracted more than 90% of net new money in 2015. Respondents were members of the US Institute and European Institute, forums for leaders at asset management firms.

Overall, the asset management industry grew just 1% to $69 trillion in 2015, up from $68 trillion in 2014. The low growth was driven by industry-wide investment losses of 0.8%, according to the report. Asset flows, meanwhile, totaled 1.4%, down from 2.7% in 2013 and 2014.

Flows—negative and positive—were highly concentrated, with the five top firms capturing 29% of flows, compared to 24% in 2014 and 18% in 2013. The bottom five firms represented 34% of negative flows, up from 19% in 2014 and 1% in 2013.

While industry flows are increasingly driven by retail investors—individuals were projected to generate 90% of all new money invested by 2020—the survey found that institutional investors are also shifting their allocations.

Asset owners have become more outcome-oriented and cost conscious in their manager selection, according to the report, resulting in higher allocations to multi-asset and passive products. Heavy smart beta and index users grew 5% from 2012 to 2015, while multi-asset-focused investors increased 6%.

Meanwhile, asset owners also became more reliant on gatekeepers such as consultants, with the percentage of investors highly influenced by a central research team growing 7% over the last three years. According to the survey, these investors are using gatekeepers to target managers that are “expert” allocators and true producers of alpha.

“The asset management industry is now in an era of disruption and consolidation,” said Fred Bleakley, director of the US Institute. “Surviving asset management firms will be leaders in specialty active management, smart beta passive, and multi-asset class solutions.”

Related: How Asset Management Can Save Itself