Insurers Ahead of Asset Management Recovery

The bad news is that asset managers expect it will take four to seven years to recover the assets under management lost during the recession. The good news is that insurers have been front and center in their efforts to divest such assets in advance of the economic slump. So says a report from McKinsey& Co., released yesterday, that outlines profitability projections.  

The study surveyed more than 100 firms that collectively manage more than $9 trillion of assets.

Profitability will continue to decline, and firms will need to cut expenses by as much as 25% to 40%, the New York management consulting company said in its research. The firm said this is more than twice the 10% to 15% cost reductions that asset management firms have budgeted for this year.

In a report filed by American Banker, David Hunt, a senior partner at McKinsey and a co-head of its wealth and asset management practice, said that many firms have been lulled into a false sense of safety because average assets remained "relatively high" last year before "falling off the cliff in the fourth quarter." Profits will be "off by a third or a half" this year, he said.

Insurers may be spared any ground-splattering, however. Although insurers held 20% of the $10.7 trillion asset share in 1998, compared to 13% of a market that represented $27.5 trillion in 2008, notes the McKinsey analysis, the firm notes a shift to domination in the market by more “pure-play” asset managers—those not owned by another financial institution such as a bank or insurance company—as making dramatic gains in market share over the past decade.

In 1998, these firms accounted for just over one-third of the market. By 2007, their share had grown to more than half due to faster organic growth. Today, pure-play asset managers control nearly two-thirds of assets.

“This trend will almost certainly continue, as banks, brokerage houses and insurance companies divest their asset management units to generate cash and achieve greater focus. In several cases, private equity firms are becoming enablers of this divestiture.”

Matt Ackermann, American Banker, contributed to this report.