market folly

Seeing how many of our readers are actively involved in the asset management industry, we figured many of you would find this past research intriguing. This is a prior McKinsey & Co publication from a few years ago where they crafted predictions for the asset management industry for the future (and in particular 2010). So, it's interesting to look back on their predictions & research and compare it to the modern day asset management industry. In the report, they outlined eight key trends that at the time they thought would be key going forward:

1. The move from accumulation to income and risk management. "As the biggest demographic wave in our country's history transitions out of the workforce over the next two decades, the retirement opportunity will represent the single largest driver of growth and profitability for the financial services industry."
2. Shift to outcome orientation from relative performance
3. Separation of alpha and beta
4. Pension restructuring
5. Institutionalization of retail sales
6. Increasing role of marketing and client service
7. Convergence and evolution of alternatives
8. Changing sources of growth in retail and international

McKinsey also came to some interesting conclusions back then. The first wasn't a stretch and was highly likely given the industry's tendencies. They believed that traditional products in the asset management arena would see price declines of 10-20%. Additionally, they forecast that up to 30% of a firm's earnings would come from new products that weren't even offered yet. This was also very much the case as new products constantly hit the markets. The question going forward becomes, what will those new products be and who will gain the leg up by innovating them? This just goes to show the ever-changing dynamic in the industry. Think about what products were offered five years ago and then compare those to today's offerings.

Lastly, they've outlined five key areas where they thought asset managers should focus on in order to take advantage of these trends: "seizing the retirement opportunity, retooling the investment management process, reinventing retail distribution and product management capabilities, reorienting new business development toward future growth opportunities, and driving scale to generate operating leverage."

Embedded below is McKinsey's past predictions for what the asset management industry would be like in 2010:

*Update: The embedded document has been removed per the request of representatives from McKinsey.


So, they've taken a broad look at the industry and it's fun to look back at their predictions and compare them to what's actually transpired. We'll have to see if they now compile a new set of predictions for 2015. You can attempt to download the .pdf here.

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