Asset managers’ profits to continue declining as low-cost ETF popularity surges

Written by Adam Cadle

23/10/2024

Profits generated by global asset managers are expected to continue to decline for at least the next four years as investors turn to lower-cost investment products like ETFs, the European Asset Management Study 2024, published by zeb Consulting has revealed.

The study, which examined 40 global asset managers with European operations, showed that their combined AuM jumped by more than 50% from €28trn ($30.4bn) at the end of 2019 to €42.2trn at the end of 2023, a compound annual growth rate of 8.8%.

However, in the same period, revenues grew by just 4.2% CAGR and profits edged up by by just 0.7% CAGR. Profits at these firms declined from 10.1 basis points of AuM in 2021 to 9.4bps of AuM in 2022 to 8.2bps of AuM in 2023.

“The fat years are over for the time being, driven by the return of bonds and the move away from highly profitable real estate,” the report stated.

Between 2019 and 2023, ETF AuM for the global industry doubled from €5.5trn to €10.3trn in just four years, zeb said in the report.

There has been a “strong development of assets under management in passive products", the report noted, as well as an “increasing range of passive products from neo banks and fintech companies". This demand was “driven in particular by private clients, as ETFs are ideal for savings plans and robo advisory". Thematic ETFs, particularly in technology, clean energy and ESG, as well as bond ETFs, have enjoyed “growing popularity.”

Zeb suggested that profit margins could be improved if firms diversify more into alternative investments as they offer “historically higher returns than traditional asset classes", while infrastructure and real estate assets offer “stable/regular income and protect against inflation".

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