The supermodel era: managers expect margin pressure to build – Jignasa Patel, Managing Director

Pinpoint of view

Asset management operating models are changing. New products and new distribution models have transformed the industry. This has brought benefits and growth – but also costs and complexity. To succeed, asset managers now require leaner, more agile operating models that allow them to prioritise performance, products, distribution and clients. Our latest four-part research series[i], Supermodel, shows that this is propelling asset managers into a supermodel era, of necessary, radical and lasting change to operating models.

Supermodel: The great evolution in asset management

Download part one: Under Pressure here

Fees fall, costs rise … something has to give

Margin pressure has been a constant in asset management for years. Recent analysis [ii] from Bain and Company shows a near-halving in profits per asset management from 2007 to 2022.

The next two years will see even greater pressure for both traditional and alternative managers. This is because operating models have lagged behind innovations in product and distribution.

We engaged 200 senior leaders in operations, finance, risk and distribution on the issue. We are publishing their views and our findings to build understanding of the challenges and solutions. Here, we detail manager expectations and outlook for margin erosion.

Almost two-thirds (65%) of managers expect a significant rise in the margin pressure facing their firm over the next two years. This figure rises to 72% among traditional managers.

“Managers are seeing their long-only actively managed equity businesses dying because of the pressure of ETFs. The fees have been crushed.” Alternatives manager

But alternative managers are not immune. Some 56% of this cohort expect pressure on their firm’s profit margins to increase significantly over the next two years.

These headline numbers mask divergence at the asset class level, as we see in the table below.

For example, about half of traditional and alternatives managers expect high pressure on margins in public fixed income and public equity funds. Of course, this is core territory for traditional managers, but it is apparent to even alternatives specialists that pressure will build.

Expectations for sustainable funds are less clear. Many managers operate in this area, but alternatives managers expect a worse outcome. About 46% expect high pressure, versus just 37% of traditional managers.

Expectations for pressure on profit margins to increase over next 2 years (% high extent)

The data diverges more in multi asset funds. Here, almost half of alternatives and just over a quarter of traditional managers expect high levels of pressure.

Despite these differences across asset classes, everyone expects margins to compress at a rate not yet seen before.

In summary, our findings highlight more acute pressure on traditional asset management business models, which is expected to intensify. Conditions are tightening for alternative managers too – though at a more gradual pace.

If our analysis reflects your experience, we would be delighted to discuss it further and address your unique needs. Please contact us on contact@carnegroup.com

Download part one here to learn more.

[i] Research of 200 asset management executives conducted by Core Data in Q3 2024.

[ii] Avoiding Wipeout: How to Ride the Wave of Private Markets, Bain & Company, August 2024