Posted inAnalysis

Fund industry profits shrink as higher costs and passives bite

The research, compiled by McKinsey for FTfm, reportedly shows that worldwide profits for traditional mutual fund groups fell 2.9% to €66bn in 2016 while total assets under management grew by 3% to €66tn.

The fall in profits was due to 4.8% higher operating costs, increased downward pressure on fees and competition from cheaper passive options.

The discrepancy between lower profits and growth in assets under management represents a ‘remarkable turning point’ for the active management industry, the firm asserted, during a time in which political uncertainty is feeding into the bottom line.

New business inflows for traditional fund managers also took a dive globally, falling by 80% to €435bn, the lowest level since 2012.   

New inflows in Western Europe fell by 20% to €426bn, leading to a 10% decline in profits.

North American fund houses particularly felt the pressure of competition from passive products, registering net investor outflows circa €146bn, relative to positive inflows of €465bn in 2015.

Kristen McGachey

Kristen joined Last Word Media and the world of financial journalism in April 2016, leaving behind a career in a legal publishing firm as a senior researcher turned assistant editor. This native Angelino...

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