Profits for IT asset disposition and management companies set to fall by a third

For all investors into asset management, this may not necessarily be the best news we hear all year round, however, there’s a dawning era upon us for the coming three years. One that everyone needs to get ready for. This is for you. Especially if you are into asset management.

Research from McKinsey has it that profits earned by companies in asset management are predicted to go down by up to a third in the next three years, as a result of the threat posed by passive investing as well as uncertainty of the markets , according to the new report put forth.

Published in this day, by the financial consultants McKinsey, this report puts a warning out there that gains are going to dramatically go down by between 30% and 35% globally for investment managers by the year 2018, unless of course companies take their actions different.

Phillip Koch, European asset management head at McKinsey, indicated that inflows outrageously turned at the start of the year 2016 as a result of “macro-economic rapid change in developing markets”, oil, which, as he states, has already been a cause of profitability receiving its very first hits as shown by a 10% drop in profits over the first 2016 quarter vs the fourth 2015 quarter.

As a consequence, McKinsey has put a warning out there that the outlook of future profits for worldwide asset management is, for lack of a better word, muted. Koch warned that because of “forces at work” in the money market surrounding with “expected asset class returns’ fall, competitive intensity, regulatory changes, digital character putting 30-35% of gain pools at risk by the year 2018,” he stated.

The report as well, highlighted that in the 1st Quarter this year, net outflows got to lowest levels since the “disaster” year 2008. This is a significant development in the industry and is bond to affect industry players in a significant way. The effects maybe far reaching.

And having “numerous assets pools still not optimally managed (over EUR 7 trillion across the whole of Europe)”, Koch believes in order to counter the very probable occurrence, cost cutting as well as potential new dropped cost products at the moment are needed.

All managers have to ‘stabilise their ships’

Asset managers, in the short term, will require to “stabilise their ships,” Koch added. He offered examples to assist handle the potentially disturbed waters, the likes of “E2E cost management, pricing” as well as managers “putting up a new course” with novelty in solutions/products as well as services, propositions, digital in nature cited as being crucial.

Also, he indicated that “portion-specific strategies for growth, mergers, new direct offering and acquisitions as well as foreign geographies,” required implementation by companies to assist alleviate some expected downturns.

Koch added that the tide had turned. “2016 is set to be a rather challenging year. Many players are simply hoping to preserve just what they already have for a period long as possible. However, at the moment, it is quite a different surrounding they are currently operating in.”