a growing gap between the winners and the also-rans 2 · this report is solely for the use of...

The Asset Management Industry:A Growing Gap Between the Winners and the Also-Rans

October 2006Copyright McKinsey & Companywww.mckinsey.com

This report is solely for the use of client personnel. No part of it may be circulated,quoted, or reproduced for distribution outside the client organization without priorwritten approval from McKinsey & Company.

At first glance, the asset management business hardly seems to be in need of

any serious retooling. On average, things are about as good as they’ve ever

been – assets under management are growing at a double-digit rate and

earnings performance remains rock-solid. Meanwhile, compensation for

industry professionals is escalating at a robust pace. And for good reason: The

results of the most recent benchmarking study by McKinsey and Institutional

Investor’s U.S. Institute reveal that asset managers generated an average pre-

tax margin of 31 percent in 2005, an impressive 5-year high.

But averages, of course, can hide as much as they reveal. And in this case, the

averages are concealing an entirely different picture when it comes to the

individual firms themselves. In fact, while the asset industry as a whole may be

incredibly healthy, the profit gap between winners and losers is both dramatic

and growing – our research shows that a full 41 percentage points of operating

margin now separates the top- and bottom-third players, a disparity that has

widened significantly over the past 3 years. Moreover, an increasing proportion

of asset managers are now earning margins under 20 percent, as the bottom-

tier performers fall further behind the rest of the pack. Unless these players

move quickly to revamp their business models, the profit gap is almost certain

to expand even further.

Indeed, the warning bells have already begun to toll for many traditional firms

not willing to depart from their business-as-usual approach. Our benchmarking

shows, for example, that both demand and pricing for a host of traditional

products are now in sharp decline – in some cases, by more than 10 percent in

2005 alone – as flows quickly polarize towards “true” alpha and “cheap” beta.

Meanwhile, the need for scale is intensifying, with those firms failing to achieve

it experiencing an ever-worsening drag on profits. Add a surge of merger activity

into the mix, and it becomes quite clear that bottom-tier players are now facing

considerable pressure either to shore up their operations or face the risk of

consolidation. For everyone else, staying one step ahead of these powerful

forces will be crucial to sustaining profit growth.

The Asset Management Industry: A Growing Gap Between theWinners and the Also-Rans

1

We base these assertions on recent findings from the most in-depth annual

study of the economics of the U.S. asset management business. McKinsey

and Institutional Investor’s U.S. Institute annually benchmark the financial

performance of more than 80 firms that collectively manage over $8 trillion in

assets, or more than one-third of the industry total. Our study includes a

balanced mix of players in terms of size, asset mix and client segments served

– as such, it provides a truly comprehensive view into the industry’s financial

performance.

Our research points to conclusions in three major areas:

• We have identified five major pressure points that are now spurring change

in the asset management industry. While the industry overall remains highly

profitable, firms that are unable to alleviate these pressure points will have

a particularly hard time maintaining future growth and profitability.

• Being a winner in the asset management business entails two fundamental

components. The first is choosing the most appropriate business model to

leverage scale, either at the overall firm or product level. The second

involves executing superbly against key levers that account for a noticeable

margin difference between winners and losers – most notably, product

management, pricing and cost discipline.

• Against this backdrop, senior management teams should be actively

developing responses to these key issues. In the process, they should be

debating, at a minimum, a management agenda that addresses the key

issues of business model choice, product development, and executional

performance.

2

Five Major Pressure Points Spurring Industry Change

While the asset management industry as a whole continues to remain extraordinarily

healthy, the profit gap between winners and losers – regardless of size or customer

segment served – continues to widen. We have identified five key pressure points

that are now playing a particularly influential role in creating that disparity.

1. A dwindling ability to gather assets

In recent years, the traditional asset management business has produced a striking

dichotomy: one of the most lucrative industries in the financial services sector is,

nonetheless, virtually incapable of collecting new money from its customers. And

2005 was no exception: average profit margins hit 31 percent, a 5-year high and an

increase of nearly 11 percent from 2004. Meanwhile, long-term assets under

management (excluding money-market funds) swelled by 10 percent – a seemingly

robust increase. But that AuM growth was driven almost entirely by market

appreciation, not new money; in fact, net new long-term flows as a percentage of

beginning-of-year assets increased by only 2 percent in 2005 (Exhibit 1). To put that

amount in perspective, it was only half the growth rate of the overall economy.

3

EXHIBIT 1

A highly profitable industry, but struggling to gather assets

Although profits are at a 5-year high . . . . . . market appreciation, not new money, is driving long-term AuM growth

Profit margin – industry averagePercent

2526

31

2728

2001 2002 2003 2004 2005

2003

2

2

2

1

8

10

18

-7 2002

2004

2005

Long-term net flows as a % of beginning-of-year AuM

Long-term market appreciation

%

Source: McKinsey / Institutional Investor U.S. Institute Asset Management Benchmarking Survey

In essence, the lifeblood of the traditional asset management industry is now

market returns – clearly, an unstable foundation on which to move forward. A

key reason for this state of affairs is the continuing encroachment of new

competitors into the traditional long-only arena. Not only are hedge funds and

other alternative providers active in this space, but a host of “outside” players,

including insurance companies, investment banks, and private equity firms are

now playing much broader roles for retail and institutional investors alike.

Insurers, for instance, are taking direct aim at the 77 million baby boomers now

headed for retirement, with a slew of new principal-protection and risk-mitigation

products. Investment banks, meanwhile, are developing structured product

solutions to help pension plan sponsors deal with their funding issues.

To be sure, the most successful asset managers have been able to increase

their flows despite these challenges. But the implications for most traditional

players are clear: either cultivate new sources of growth, or roll the dice on

future market appreciation – and hope it will be enough to fuel profits.

2. Rapid polarization of flows arising from alpha-beta separation

If the prospect of wagering future profit growth on market appreciation isn’t

unnerving enough, our benchmarking research offers an even more compelling

reason for firms to take a hard look at their current product offerings: alpha-beta

separation is ramping up, and traditional core/active products are rapidly losing

ground as a result.

The concept of alpha-beta separation is, of course, not new to the asset

management world. Indeed, many sponsors of defined-benefit pensions are

now actively constructing their portfolios with the aim of achieving specific risk

and return objectives, using alpha and beta as the building blocks. What is

surprising, however, is the speed at which the separation of alpha and beta is

polarizing flows away from traditional core products toward “truer” sources of

alpha or cheap beta (Exhibit 2).

In 2005, higher-alpha strategies captured 20 percent of overall AuM; at the

other end of the spectrum, cheap beta garnered 24 percent of assets. In both

cases, this represented growth rates in the range of 20 to 30 percent, far

outstripping the industry average. These gains, naturally, came at the direct

4

expense of traditional core/active products; particularly hard hit were long-only

equity and balanced funds, which plunged into negative-growth territory in 2005,

shrinking by 2 and 5 percent respectively.

Looking at the flows by segment, worsening pension deficits and an uncertain

market environment continue to change the way defined benefit sponsors

evaluate and pay for performance. As a result, higher-alpha and cheap beta

products accounted for more than 50 percent of institutional AuM in 2005,

about double the share we observed in our survey only 2 years ago. On the

retail side, efforts by alternatives manufacturers to make their products more

accessible to affluent and even mass-affluent customers are likewise skewing

growth to higher-alpha strategies. In 2005, for instance, alternatives grew by

21 percent, more than triple the average growth rate in the retail market. At the

other end of the spectrum, quantitative active ballooned by 47 percent.

3. Pricing under pressure

For asset managers, alpha-beta separation carries not only important product

development implications, but also serious pricing ramifications. For starters,

5

Higher-alpha strategies

Traditional active/core

“Cheap beta”

Alternatives/others

Equity

Balanced

Fixed Income

Money market

QA

Pure index

International

AuM growth2004-2005,%

27

-2

-5

10

5

34

0

17

EXHIBIT 2

As the trend to separate alpha and beta speeds up, traditional core/active products are losing ground

32

5

25

15

8

9

Share ofAUM, %

6

8

Share of AuM, %

13

29

2

16

17

16

8

7

AuM growth2003-2004, %

23

11

3

8

-11

29

12

19


as performance becomes more transparent, customers are switching to

cheaper forms of beta exposure. At the same time, traditional long-only

managers who are unable to generate true alpha are finding it more difficult to

sustain their fees. Indeed, our survey reveals that retail asset managers in

particular continue to face unrelenting pressure on the pricing front, while

changes in institutional pricing remained more nuanced (Exhibit 3).

Net revenues for retail firms continued to shrink, from 59 basis points in 2001

to 48 basis points in 2005. Fees declined across a broad swath of

traditional/core products – hardest hit were balanced funds, which saw prices

drop by 11 percent in 2005 alone. Though institutional net revenue yields

managed to rise modestly in 2005 to 37 basis points, several traditional/core

products also faced serious price erosion. For example, net revenue yields for

tax-exempt and midcap-equity products fell by 14 and 10 percent, respectively.

Given the increasing polarization of flows to higher-alpha and cheap beta

products, we believe that recent price declines in traditional core products are

likely to continue. The implications for the asset management industry, which

6

Institutional – overallNet revenue yield, b.p.

2003 2004 20052001 2002

5953 54

5148

Retail – overallNet revenue yield, b.p.

EXHIBIT 3

Pricing power is eroding among many traditional core/active products

Product Strategy

Net revenue yield, b.p.

Price change2004-2005 %

2001 2002 2003 2004 2005

33 34 36 35 37

Taxable fixed income 42 2

Large-cap equity 54 4

Balanced 50 11

Mid-cap equity 64 2

Share ofAuM, %

7

27

4

6

Tax-exempt 13 141

International equity 44 44

Taxable fixed income 18 014

Large-cap equity 41 510


has enjoyed consistent annual price increases for most of the past two

decades, are profound: our benchmarking shows that for a typical firm, a 10

percent decline in price would decrease pre-tax margins by 20 percent.

4. Productivity stalling

In most industries, increased pricing pressure typically serves as a wake-up call to

improve productivity. That does not seem to be the case in the asset management

business. In fact, industry-wide productivity has shown practically no improvement

over the past year – our research shows that for each additional dollar in assets

under management, there is practically no associated cost benefit.

Firms, essentially, are not becoming more efficient in their core processes. This

is particularly true in the areas of headcount and compensation, the latter of

which accounts for about two-thirds of a typical firm’s overall costs. Our

benchmarking shows that in 2005, industry productivity (as measured by AuM

per employee) grew at the same rate as AuM. But after stripping away the

effects of market appreciation, firms upped their headcount at the same rate

as they brought in net new assets (Exhibit 4).

7

Productivity and AUM growth 2004-2005

Growth in headcount 2004-2005

Increase in number of employees

2%

Growth in productivity(AUM /employee)

Growth in AUM

Net new long-term flows

11%

9%

2%

Market appreciation

11%

Data for same firms in 2004 and 2005 surveys:

EXHIBIT 4

Firm productivity is not improving, with headcount increasing at the same rate as net new flows


Over the history of our benchmarking research, we have found that the asset

management industry in general has not been as rigorous at driving operational

efficiency improvements as other financial services firms which face much

greater profit pressures. For instance, leading brokerages have been driving

productivity gains by migrating less profitable customers to more cost-effective

service models, such as call centers. At the same time, they have been

consistently driving down their average cost per trade. As overall conditions

become more challenging for traditional asset managers, productivity will

continue to play an increasingly crucial role in separating winners from losers.

For instance, our research shows that in 2005, the most profitable firms

managed about $1 billion in assets per investment professional – more than

double the $470 million managed by bottom-tier firms. The gap is more

pronounced when it comes to institutional sales productivity. Here, winning

firms averaged about $1.2 billion per sales person – more than triple that of

the least profitable firms.

5. Persistently high outflows

Given the growth, pricing, and productivity trends already described, the ability

of firms to retain assets once they have captured them is of paramount

importance. But here again, the industry faces a challenge: outflows (net of

money market) have remained stubbornly high over the past several years, with

our latest survey showing a 21 percent annual outflow rate. Moreover, while

investment performance is clearly an important driver of new flows, it is hardly

enough to keep assets once they’re in the door. In fact, our research shows

that almost half of all top-tier investment performers still experienced above-

average outflows in 2005 (Exhibit 5). And this phenomenon held true across

both retail and institutional markets.

At the other end of the performance scale, our research shows that even when

investment returns are less than stellar, asset managers excelling in client

service and retention management are often highly successful in retaining

assets in both retail and institutional settings. For example, firms with an

above-average spend in client service experienced outflows in 2005 that were

a full 5 percentage points lower than those firms with a below-average spend.

At the bottom of the bear market, that gap was even wider, at 10 points.

8

9

EXHIBIT 5

Outflows remain stubbornly high and are not correlated to investment performance

2224

2021

2002 2003 2004 2005

Long-term outflows as a percentage of beginning-of-year AuM

Survey overallPercent

Outflows as a percentage of beginning-of-year AuM

-5

0

5

10

15

20

25

30

35

40

020406080100

Weighted average Lipper 3-year investment performance percentile rankings

BestWorst

Almost half of all top-tier investment performers experienced above-average outflows


Winning in the Asset Management Industry

Our benchmarking research reveals the presence of a significant – and growing –

profit gap between the asset management industry’s best and worst performers.

In 2005, that gap was 41 percentage points, up from 32 points only 2 years ago.

So what exactly separates the winners from the losers? In short, the most

successful players have figured out how to stay one step ahead of the five major

pressure points now bearing down on the industry. The ability to stay ahead, in

turn, has two fundamental components: choosing the right business model to

drive scale, and executing superbly against key tactical levers.

Driving scale through choice of business model

Our research shows that a defining characteristic of winning players in the asset

management industry is their ability to use scale as a competitive advantage.

But not all firms employ scale in the same way – firms pursuing any one of three

business models have been, and will likely continue to be, almost twice as

profitable as those that aren’t (Exhibit 6).

10

Winning business models

Average profit margin by business modelPercent, 2005

At-scale competitors

Focused asset class

Multi-boutiques

Stuck-in-the middle

At least $100 billion in AUM

At least two-thirds of assets in equities, fixed income, or index/QA

Above-average assets per strategy

Operate as a parent company to a collection of independent money managers

All other firms

35 37 37

20

2003

2004

2005

32

38

41

Profit gap between top-third and bottom-third firmsPercentage points

EXHIBIT 6

As the profit gap between winners and losers has grown, three “winning business models” have emerged


With the profit gap between winners and losers growing wider, the unique

attributes that characterize each of these three winning business models is

becoming ever-more important. Within each model, the leaders use scale in

different ways to create competitive advantage (Exhibit 7):

At-scale firms – those with $100 billion or more of assets under management

– have, on average, consistently produced profit margins topping 35 percent

since 2001. Firms in this segment use their large overall size to drive volume

through distribution reach, product breadth, and brand. Their sheer size allows

them to generate a cost advantage that more than offsets the burden of

maintaining a corporate center to manage the enterprise.

In 2005, the average cost-per-asset for firms employing this business model

was 19 basis points, or about 40 percent lower than that of the least profitable

firms. And that cost advantage was present in every function, including

investment management, sales, operations, and technology and general

management expenses. For instance, at-scale players spent an average of 7

11

At-scale players Focused players

Average firm sizeAuM, $ Billions

$228 $79 $49 $52

2,048

Institutional sales productivity*$ Millions

1,062IM productivity*$ Millions

1,180

AuM/product strategy$ Millions

1,773

957

1,315

2,467

998

827

Stuck-in-the-middle firms

362

467

978

65Cost/revenuePercent

31Revenue/AuM B.p.

19Cost/AuMB.p.

64

35

22

61

36

21

80

39

30

Multi-boutiques

Competitive advantagespecific to business modelCompetitive advantagespecific to business modelWinning business model

Profit margin, % 35 37 37 20

* Assets per IM and sales professional

EXHIBIT 7

Leading players use scale in different ways to generate a winning edge


basis points per asset on investment management in 2005, compared to 11

basis points for firms with less than $25 billion in AuM. Moving forward, the

cost edge attributable to all at-scale players will place them in a strong position

to endure the effects of intensifying pricing pressures, especially in an era of

commoditizing products.

The multi-boutique model is not only a highly profitable model – firms following

it reaped margins of 37 percent in 2005 – but it has also been emerging as a

preferred model for absorbing and integrating acquisitions. With the pace of

M&A acivity picking up, we believe this model will continue to grow in

prominence.

• Multi-boutique players exploit the product scale advantages present in each

of their constituent firms and enjoy the high sales and investment

productivity that comes with focusing on a limited set of products. In 2005,

these firms had $1.3 billion in AuM for each sales professional, more than

triple the amount for the average losing firm. Indeed, over the course of our

benchmarking research, the institutional sales productivity of multi-

boutiques has consistently been more than 50 percent better than that of

the average similar-size firm.

Focused-asset providers – firms with at least two-thirds of their assets in either

fixed income, equity, or index/quantitative active and above-average assets per

strategy for their size – use the scale and expertise they possess in specific

investment strategies to drive distinctive performance. In 2005, these players

managed, on average, an impressive $2.5 billion per product strategy –

considerably more than firms pursuing any other business model. These

players have successfully balanced the need to grow into new products and

client segments with smart product-mix management to maintain that scale

advantage. The result: above-average profitability throughout the cycle, with

average margins of 37 percent in 2005.

• As the separation of alpha and beta continues to take hold, we expect many

of these focused-asset firms to emerge as leading “alpha engines.” And like

the multi-boutiques, they will also continue to enjoy many of the productivity

advantages associated with product focus.

12

As for the losing firms in the asset management industry? The overwhelming

majority do not successfully pursue one of the three business models described

above. These “stuck-in-the-middle” players, as we call them, are neither large nor

focused, possessing assets under management of just over $50 billion on average

and about $980 million per product strategy – less than half that of the industry

norm. They must spread their resources across a diversified set of asset classes,

resulting in higher costs and lower productivity than their peers.

Looking ahead, we believe that these stuck-in-the-middle firms are likely to be

the most logical candidates for mergers and acquisitions activity, particularly as

increased pricing pressures and rising costs continue to squeeze margins.

Moreover, for small and mid-size asset managers there are real benefits to

acquiring scale: our benchmarking shows that the cost per asset of the

industry’s smallest players far exceeds that of their larger competitors across a

range of functions (Exhibit 8).

13

Investment management

Management, administration, and other

Sales and marketing

Technology and operations4 4 3

6 54

97

6

11

9

7

<$25 billion $25 bn to $100 bn >$100 billion

Firm size

29

25

19

Cost per assetB.p.

EXHIBIT 8

For small and mid-size players, acquiring scale can result in significant cost savings across a range of functions


Execution against key tactical levers

Choosing the right business model with which to leverage scale is a crucial

element to being a winner in the asset management industry. But it’s not

enough. Indeed, one-quarter of firms with a “winning” business model

nonetheless turn in bottom-tier profitability. For these players, the missing link

is superb execution – an absolute must in the rapidly changing asset

management industry.

Our benchmarking reveals that best-in-class execution against seven growth

and profitability levers continues to differentiate winners: asset and client mix,

sales management, retention management, pricing, product management, firm

scale, and cost management. While the importance of each those lever varies

by business model, we have found that three in particular – pricing, product

management, and cost management – consistently drive above-average

profitability for players across the board.

Product management. We have found that the most profitable firms

consistently manage their product lineup through such proactive steps as

pruning sub-scale product strategies and taking a disciplined approach to

introducing new funds. Regardless of size, firms that have done a better job

than their peers in creating a focused product lineup have been more profitable.

For example, among multi-boutiques, those possessing a more focused product

set (in this case, about $2.5 billion per product strategy) generate an

impressive profit margin of 49 percent, more than double those of the bottom-

tier multi-boutiques.

By its very nature, product management affects all facets of the business. For

example, a well-managed product line is both easier for wholesalers to

understand and for advisors to sell, factors which increase the productivity of

the sales team. By contrast, a more complex product line, with a higher number

of vehicles per strategy, increases downstream IT and operations costs.

Pricing. As we’ve noted, pricing pressures are intensifying in the asset

management industry, a trend that we believe will continue in light of several

overarching factors, including alpha-beta separation, increased transparency

14

into investment performance and heightened competition from non-industry

players. But beyond these larger forces, our benchmarking research has

uncovered a striking disparity in pricing practices, much of which we believe is

highly controllable through better pricing discipline. For instance, we continue

to see a wide range of pricing – even among asset managers with similar-size

client mandates (Exhibit 9).

It is hard to overstate the value of improved pricing discipline, given its

enormous leverage on the bottom line – as mentioned earlier, a 10%

improvement in pricing would increase the profit margin of the typical asset

manager by 20%. While investment performance can influence pricing levels –

particularly given the growing use of performance-based fees – salesforce

management is often an even bigger factor. In particular, leading firms rigorously

control their front-line discounting practices, and as a result experience much

less pricing variability between both sales professionals and accounts.

15

Retail Institutional

Realized net revenue yields on assets – selected examplesB.p.

7177

62

4554 54

42

29

41

27 25

8

QA Large cap

Tax FI MM

19

54 53

32

21

73

10

3541

1811

37

3

13

26

104 4

QA Large cap

Tax FI MM Struc-tured products

Pure Index

For a typical firm, a 10% increase in price would increase pre-tax margins by 20%

Pricing dispersions remain, even after controlling for mandate size

Improved pricing management continues to be a key profit improvement opportunity for firms

EXHIBIT 9


Cost discipline. As we’ve noted, scale can create major cost advantages and

boost long-term returns. But even among firms of the same size and type, cost

discipline can be a powerful and effective competitive weapon. For instance,

the very best at-scale players had a cost per asset of only 11 basis points in

2005 compared to 25 basis points for the least profitable at-scale firms. At the

same time, we have observed well-run small firms that have managed to keep

their cost per asset down to the same level as the lowest-cost at-scale firms.

In fact, when it comes to the four major spending areas for asset managers, the

most disciplined firms routinely outperform their competitors by a significant

magnitude – between four and ten times (Exhibit 10).

Most asset managers can turn to an array of performance improvement levers

to drive better cost efficiency. For instance, decisions around location strategy

– such as offshore versus near-shore – can dramatically affect overall costs and

scalability. IT costs and effectiveness, meanwhile, can be significantly improved

by focusing on the highest-value projects and optimizing infrastructure

environments accordingly.

16

Within each of the four major spending areas, superior cost discipline gives leading firms a major competitive edge Blended high

AverageBlended low

Blended highAverageBlended low

EXHIBIT 10

Equities firms

Fixed income $ MM

Equities firms

Fixed income $ MM

Cost gap= 5x

Equities firms

Fixed income $ MM

Equities firms

Fixed income $ MM

22

11

34 5

13

Investment management Sales and marketing

Technology and operations Management and admin/other

9 10

1145

128

23 57

8 6

2 34

Cost gap= 10x

Cost gap= 4x

Cost gap = 4x

1


A Dashboard for Success

The asset management industry has always devoted an enormous amount of

energy to measuring investment performance - tracking error, Sharpe ratios and

alpha attribution analysis are all regular staples of most management reports.

Surprisingly, though, the economic drivers of business performance are not

given nearly the same level of scrutiny. As we've outlined, the importance of

these drivers, in terms of both business model and executional detail, are

critical to maintaining top-tier profitability. At a minimum, five key business

levers should be discussed as part of the regular management review process:

• Operating leverage: Scale is both a difficult and crucially important issue,

and it operates at multiple levels for a typical asset manager. Some costs

– such as marketing and branding – can clearly be leveraged across the

broader scale of a firm. Others are related to particular investment

strategies – and scale can sometimes have a negative impact on investment

performance. To successfully gain operating leverage as a firm grows, senior

management must understand the scale curves unique to the firm, and how

those curves interrelate.

• Productivity: Management should not only have in place regular targets for

broad productivity measures (e.g., revenue per employee) but should also

establish key performance metrics for each of the firm's core processes,

such as account opening and trade clearing. Many other sectors of the

financial services industry have been far more aggressive in driving

productivity through offshoring, outsourcing and core process redesign –

winning asset managers will be those who follow suit.

• Growth and business-mix targets: Moving forward, the major sources of

growth in the asset management industry will clearly undergo significant

change, with such markets as retirement, IRA rollover, international and

alternatives growing at a much faster pace than ever before. It is imperative,

therefore, that management teams set clear targets not only for overall

growth, but also for desired product and channel mix in the years ahead –

and understand the organizational changes that might entail.

17

• Pricing and revenue realization : Given the large disparity in pricing revealed

by our benchmarking research – even across standard product categories –

it is clear that a disciplined regular review of pricing policies, discounting

practices and revenue realization can generate substantial bottom-line

results.

• Return on investment in client service: Our survey shows that investing

intelligently in client service will reap substantial benefits in asset retention

and client satisfaction. Management teams must have a clear

understanding of both the economic benefits that accrue over the lifespan

of a customer and the costs associated with retaining those customers –

and winning firms will have a clear handle on how to strike the right balance

between the two.

* * *

Future winners in asset management will be those players who succeed in staying

ahead of the powerful forces now redefining the industry. For many, staying ahead

will involve a significant retooling of their current business models. While that

sound like a tall order, asset managers choosing to take such proactive steps will

likely be ensuring their future prospects. Those opting to stand still, on the other

hand, are almost certainly facing challenging times ahead.

18

About McKinsey & Company

McKinsey & Company is a management consulting firm that helps many of the

world’s leading corporations and organizations address their strategic

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For more information about McKinsey & Company's initiatives within the assetmanagement industry, please contact:

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19

Amsterdam

Antwerp

Athens

Atlanta

Auckland

Bahrain

Bangkok

Barcelona

Beijing

Berlin

Bogota

Boston

Bratislava

Brussels

Budapest

Buenos Aires

Caracas

Casablanca

Charlotte

Chicago

Cleveland

Cologne

Copenhagen

Dallas

Delhi

Detroit

Dubai

Dublin

Düsseldorf

Frankfurt

Geneva

Gothenburg

Hamburg

Helsinki

Hong Kong

Houston

Istanbul

Jakarta

Johannesburg

Kuala Lumpur

Lisbon

London

Los Angeles

Luxembourg

Madrid

Manila

Melbourne

Mexico City

Miami

Milan

Minneapolis

Montréal

Moscow

Mumbai

Munich

New Jersey

New York

Orange County

Oslo

Pacific Northwest

Paris

Philadelphia

Pittsburgh

Prague

Rio de Janeiro

Rome

San Francisco

Santiago

São Paulo

Seoul

Shanghai

Silicon Valley

Singapore

Stamford

Stockholm

Stuttgart

Sydney

Taipei

Tel Aviv

Tokyo

Toronto

Verona

Vienna

Warsaw

Washington, D.C.

Zagreb

Zurich

McKinsey & Company

The Asset Management Industry: A Growing Gap Between the Winners

and the Also-Rans

October 2006

October 2006Copyright McKinsey & Companywww.mckinsey.com

This report is solely for the use of client personnel. No part of it may be circulated,quoted, or reproduced for distribution outside the client organization without priorwritten approval from McKinsey & Company.

a growing gap between the winners and the also-rans 2 · this report is solely for the use of...

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