The latest edition of the TAI Global 500 shows that the total AUM of the world’s 500 largest asset managers dropped in the course of 2018 by about $2.9tn to $91.5tn.
This research, conducted jointly with Pensions & Investments, tracks year to year developments within the industry. To get the bigger picture, it’s good to step back and look at the longer-term patterns.
For example, lining this year’s list up against the equivalent list of ten years ago reveals that close to half of the names have changed. A total of 242 firms have folded, dropped off the bottom of the list, been taken over, merged or undergone some other change that resulted in a change of name. And, of course, many of the 258 other firms experienced significant change even though their name remains the same.
Nobody is likely to be surprised to hear that asset management is not a particularly stable industry. It’s worth remembering, though, that the past ten years have been a pretty benign environment. Markets have been strong, assets have grown, margins have seemingly defied gravity.
The next ten years are shaping up to be a much more disruptive environment. It’s widely estimated that margins are falling by 1% to 2% a year. The shift from DB to DC is creating both winners and losers. The industry needs to step up on sustainability. These and other pressures leave asset managers with tough choices to make.
The Institute’s work on the asset manager of tomorrow points to several areas where a response is needed. Let me highlight just one: purpose.
Purpose, of course, suddenly became a trending topic in August 2018 when Jamie Dimon, Tim Cook, Jeff Bezos and 178 other CEOs put their signatures to a statement on the purpose of a corporation issued by the Business Roundtable.
The statement lists five stakeholders. That’s four more than generations of business students have been taught is necessary.
This statement in effect states that the famous invisible hand of Adam Smith’s Wealth of Nations does not work by magic. That an exclusive focus on short term profit does not inevitably produce the best possible outcome for employees and communities and society.
In the context of the asset management business, I see close parallels with an idea that Charley Ellis wrote about twenty years ago in an article that describes a tension between the asset management business and the asset management profession.
In it, he argued that: “It is dangerously possible that we will concentrate on succeeding with the business aspects of distribution and asset gathering, but lose our grounding in the profession.”
In other words, that we forget our purpose.
The business side is important and must be managed. But if your only driving purpose is profit, you’re just another one of 500 investment firms jostling for elbow room in an environment which is only going to get tougher.