US Mutuals Spur Global Assets Under Management Decline

By the close of the year, assets under management worldwide totaled almost $34 trillion.   The pace of asset growth has completely reversed its course since 1997, when assets under management grew by 23.3%. In fact, in 1998, assets under management grew by 17%. In 1999, that growth rate slowed to 14% while in 2000, assets under management grew by only 4.1% and there was only a tiny sliver of growth at 0.2% in 2001 (See  Global AUM Growth Continues to Slow ), according to the Global Update survey conducted by Cerulli Associates.

Last year’s losses were led by mutual fund declines, totaling $1 trillion, with net new inflows of only $182 billion. Equity mutual fund inflows hit five-year lows of $36 billion, crushed by mass net redemption in the United States, but offset by net increases outside of the US.   Overall, the mutual fund industry exposure to equity-objective products has dropped from 50% in 37% in 24 months.

While the study forecast professional buyers, including multi-manager programs, retirement funds and other institutional investors, to maintain equity exposure, caution was thrown in the direction of retail investors. Retail players are expected to initially shy away from substantial new purchases of equity funds, as many customers worldwide seek safety in guaranteed products .

Sunshine Days

However, the study did offer a ray of sunshine in an otherwise cloudy report, with predictions that global assets under management will grow 6.7% compounded annually through 2007:    7.5% outside the US and nearly 6% inside.   Bright spots will include France, Germany, Australia andTaiwan where Cerulli predicts compounded annual growth rates will meet or exceed 10%.

Further, the study concluded mutual fund vendors will continue to take advantage of a “savings gap” outside the US, where customers will need to plow at least $4 trillion more into mutual funds to approach stateside penetration levels. Europe represents the brightest hope, whereretail investors facing dwindling state pensions will likely find themselves forced to come up with most of the $1.6 trillion they require to meet the same saturation levels seen in the US.

Looking to the short term, the report noted opportunities in the defined benefit marketplace, perhaps fending off long-term attrition trends brought forth by the imminent retirement of baby boomers. Worldwide, defined benefit systems are nearly $800 billion underfunded, and immediate cash injections to shore up the shortfall are taking place. Those new inflows, coupled with resulting asset-allocation adjustments, will create significant opportunities.

Cerulli’s assessment of retail and institutional fund management marketplaces is based on a sample of 20 countries worldwide.