The beloved American author and playwright Arthur Miller was known for a keen insight into tragedy and human frailty—so it should send a clear message that McKinsey and Company’s most recent asset management industry analysis opens with a Miller quote: “An era can be said to end when its basic illusions are exhausted.”
According to the report, “Thriving in the New Abnormal: North American Asset Management,” the U.S. asset management industry is on the brink of a once-in-a-generation shift in competitive dynamics. The paper’s authors—Pooneh Baghai, Onur Erzan, Ju-Hon Kwek and Nancy Szmolyan—suggest this is due mainly to five converging trends that may be unprecedented in their combined impact.
“All asset management firms will face challenges in the new environment—including those that have been consistent leaders over the past several years,” the report warns.
The first trend is simply the fact that we are “at the end of 30 years of exceptional investment returns.” According to the authors, any expectation that these returns would continue indefinitely was simply misinformed.
“Research from McKinsey Global Institute indicates that the global market returns of the past three decades have been an historical anomaly and that the macro trends fueling these returns are all fading to some degree,” the report suggests. “The result will be a decline in average returns for equities of 150 to 400 basis points and of 300 to 500 basis points for fixed-income assets. This decline has implications that extend well beyond the asset management industry, but for the industry the impact will be unambiguous.”
Perhaps most troubling, the McKinsey researchers predict asset management firms “will begin to feel the loss of the cushion of beta-driven revenue growth that buoyant markets have been providing for decades, particularly following the financial crisis.”
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