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Laxman Pai, Opalesque Asia: Operating margins for traditional publicly traded U.S. money managers fell by more than 20% over the five years ended Dec. 31, said a report.
However, the balmy market environment generated equity returns of nearly 60% over the same period, according to Casey Quirk, a Deloitte Consulting business.
Casey Quirk researchers found that the median operating margin for U.S. money managers was 27% in 2019 compared to 34% five years earlier.
The biggest reason behind the slump in profit margins was the drop-in fees for assets managed, the report "A Rising Tide Tips All Boats" showed, with revenue down a total of 22% in the five years ended Dec. 31.
Organic growth has been anemic over the past five years, but the biggest contributor to slumping profit margins has been the drop in fees earned for managing investor money, according to the Casey Quirk study.
"Rather than abating, fee pressure appears to actually be accelerating - the steepest decline, 6.1%, occurred in 2019," said the report.
During the same period, expenses continued to rise, outpacing overall revenue gains each year since 2015, the Casey Quirk analysis found. That trend was particularly stark in 2019 when costs rose 3.7% while revenue declined 1.9%.
"Economic trends continue to squeeze asset managers and will drive further consolidation," said Amanda Walters, a principal at Casey Quirk. "Winning firms will drive scale, optimize costs, and rationalize and rebuild their investment offerings, as well as adopt new operating models to meet investor demands."
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