Assets under management (AuM) in the Middle East will grow by a staggering $100 billion (7% CAGR) from 2021 to 2022 to reach $1.3 trillion, according to the latest annual asset management report from Boston Consulting Group (BCG) Dollar.
BCG’s report, “Global Asset Management 2023: The Tide Has Turned” examines the external and internal forces shaping the asset management industry—outlining the fundamental pressures facing asset managers—and details the transition for asset managers to return to historical levels of profitability road and growth.
“While relatively outperforming its European and American counterparts, the asset management industry in the Middle East has reached a critical juncture, forcing leaders to reassess their organizations’ operations in order to regain the profit growth seen in previous years. In fact, since 2006, 90 % of revenue growth comes from market performance, and in this environment that is no longer guaranteed, now is the time for a real transformation,” said Markus Massi, BCG Managing Director and Senior Partner.
The market is expected to recover
“While 2022 will be one of the worst years for global investor returns since 2008, markets are expected to recover. However, global central banks are no longer orchestrating sustained market appreciation. Their short-term objective is the exact opposite; they are trying to slow growth speed to counter inflation that would have an impact, especially on equity markets. For the Middle East, however, growth prospects are more positive, driven by continued oil revenue growth and relatively positive developments in equity markets.”
BCG estimates that, given existing pressures and market expectations, if global asset managers persevere, their annual profit growth rate will be roughly half the industry average in recent years (5% versus 10%). To return to historical levels, asset managers will need to cut overall costs by 20% and restructure revenue so that at least 30% of revenue comes from higher-margin products.
The report outlines three main themes that should be at the top of a thriving leadership agenda in the years to come:
• Profitability: Asset managers should transform their approach to profitability. They can do this by understanding the spending and drivers of each function and using multiple initiatives to optimize costs, not just cut them.
• Private Markets: Companies should look for high-growth alternative investments and private market opportunities within them. Companies aiming to enter an alternative market can do so through four main routes: building in-house, acquiring multiple companies and using an affiliate or boutique structure, acquiring an alternative company and operating independently, or entering into a partnership. This is especially true for Middle Eastern asset managers given the high preference for private assets among regional investors and the lack of other alternative investment vehicles.
• Personalization: Asset managers should leverage technology to enable highly personalized customer experiences and products. New technologies can increase the efficiency and effectiveness of personalization in the sales and marketing process, potentially increasing sales conversion rates by approximately 20% compared to traditional methods.
critical turning point
“In an environment where growth is no longer guaranteed, fees are compressed, and passive investing is increasingly popular, the asset management industry in the Middle East is facing a critical inflection point. Indeed, it is time for leaders to take a fresh look at them.” Farouk, Principal, BCG El Hosni said.
“Organizations should evaluate and optimize costs across the value chain, really focusing on what makes them different. Moving forward, the only option is to change.” – trade arab news agency