The consultancy has produced a report on the European asset management sector titled ‘Is the tide turning?’ which makes a number of observations about the state of the industry in 2016.
McKinsey said the profit outlook is ‘muted’ due to the capital market environment, an expected fall in asset class returns, regulatory changes, competitive intensity and digital behaviour.
In Q1 2016 European asset management net flows reached the lowest levels seen since the crisis 2008 at -€16bn McKinsey said, and profitability has already dropped 10% in Q1 2016 versus Q4 2015.
The fall in profit stems in large part from the hit to revenues created by declining base fees, lower performance fees and declining equity markets.
Christopher Aldous, head of asset management and distribution at Charles Stanley, acknowledges that movements in financial markets are playing a big role in this declining profitability but also believes asset managers can help preserve their profits by controlling costs better.
“The asset management industry has faced significant headwinds in recent years, with the poor start across global financial markets compounding the difficult conditions we are experiencing.” He said. “Whilst we cannot control the markets, one thing we can seek to control is our cost. McKinsey are right to say that asset managers’ operating costs have risen sharply– not least due to the vast swathe of new regulation which has landed on the industry’s desk over the past few years.”