DOWNLOADS Open Interactive Popup Special Report European Asset Management after an unprecedented Year Full Report (17 Pages)In 2020, the European asset management industry reached record levels in terms of aggregate revenues and profits. COVID-19, which wreaked havoc on a worldwide scale, emerged in the middle of the year. The economic and human suffering continues, but European asset managers have weathered the storms, with an unprecedented 25.2 trillion in assets under administration (AUM) at the end of the year, up 5 percent from 2019.Overall, 2020 was a record year for asset managers as it was for many other business sectors. These years have seen the industry struggle, but they also offer opportunities to grow and improve their standing with clients and the general public. We summarize the key trends that asset managers face and make strategic recommendations to move the industry forward after the COVID-19 crisis has passed. We provide more information and data in the full report on European asset management after an unprecedented number of years.An year of new highs and shocksMarkets were under severe stress towards the end March 2020. European investors sought safe assets and drew more than 100 billion dollars in the first quarter. However, markets quickly recovered and net flows to long-term investments were also restored. The net flows of 750 billion across all asset segments and classes increased European managers' AUM by 3.2 per cent for 2020. This is the third highest annual net flow effect in the past 13 years.The total AUM of Western Europe grew by 1.2 trillion to 25.2 billion in 2020, an increase of 5 percent. The growth rates of AUM have slowed down a lot: the growth rate in institutional assets dropped from 12 percent to 5 percent in 2019, while retail asset growth fell from 15 percent and 6 percent.The Western European revenue pool grew by 7 percent to 55 billion and the profit pool rose 11 percent to 22.8 billion. Europe's managers failed to capitalize on the operating leverage that was once a key feature of their business. The industry's 2007 peak was well below, with revenue margins falling a little, cost margins dropping by almost 1%, and overall profit margins at 13.6 percent.Exhibit. We aim to give people with disabilities equal access on our website. We are happy to provide information on this content. McKinsey_Website_Accessibility@mckinsey.comThese numbers reveal that the absolute cost pool increased at 4.2 percent in 2020. This highlights how dependent the industry's profitability on rising markets.We estimate that asset managers could make significant incremental profits if they can focus on capitalizing upon their economies of scale by exercising greater control over cost. The core question is: How can asset managers regain their operating leverage given industry challenges like cost and competition?Are you interested in learning more about our Financial Services Practice?Europe's Asset Management Landscape is shaped by structural trendsAlthough Europe's asset managers are in a good financial position, they still face significant challenges from the market, economic and social environment. We present five trends and their effects in the paper. Some of these are long-standing, while others have just emerged recently.Loose monetary policiesSince the financial crisis, accommodative central bank policy has been in place. It was further relaxed in the first quarter 2020. An extended period of easy money policy is likely to continue to support equity markets and suppress returns to fixed income. Retail investors will respond accordingly.Intervention by the governmentThe European Union's public deficit is expected to rise to 95 percent GDP by 2021. The future business cycle will be shaped by the ongoing fiscal stimulus. Asset managers should evaluate the possible consequences of portfolio strategies when developing them.Focus on environmental, governance, and governance performanceAsset managers have the opportunity to lead Europe on a greener path. This is because European corporates and governments are increasingly focusing on sustainable investments.We also highlight the positive trends in digital business and regionalization of Europe's economy. Digital channels aren't new. However, COVID-19 has made it easier for employees and consumers to use remote tools and work remotely. This calls for portfolio adjustments to favor dynamic companies.European asset managers should expect greater challenges in cross-regional ventures. This is due to the increased regulation of each country and region and the increased pressure on them to provide more targeted products.The future of European private banking: Prepared for rapid changeRethinking asset managementThe function of an asset manager was simple in the past. It served as a financial conduit between private and institutional capital sources seeking returns and firms that needed capital to invest. The industry serves a wider variety of investor goals and needs, including income and capital growth. To ensure a solid future, Europe's asset managers should adhere to three fundamental imperatives.1. Take a leadership role in creating a sustainable futureAsset managers, as a group, have a voice that is heard worldwide by corporate boards. They should be a leader in this field. Asset managers can support the efforts of governments, industry groups, and nongovernmental organizations and steer capital flows in the most sustainable and productive directions.2. Accept technology disruptionsAs a sign of the technological changes we anticipate over the next decade, the shift to remote work in response to COVID-19 was an early indicator. Asset managers must transform their organizations in order to be more adaptable and learn continuously.3. To capture additional profit pools, move the boundariesTwo levers of growth are available to Europe's asset managers: capturing scale economies and expanding the boundaries of the asset management market. Asset managers must assess the operating models of their companies with an eye towards scalability, use cost-saving technologies, reduce operating-model complexity, and adopt cost-saving techniques to realize economies.Managers must make a concerted effort to understand the needs of investors so that they can present a compelling value proposition. This could take the form of alpha generation, superior execution and simplified market access. It can also help with risk control, richer diversification, better client satisfaction, and fulfilling clients ESG goals.Download the complete report, European asset management after a record-breaking year (PDF8.0MB) to get a deeper look at the findings.
