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Global asset industry long-term outlook still at risk

The global asset management industry’s long-term health remains at risk despite the return of strong, short-term performance, according to management consultancy McKinsey.

A study by the firm says global assets under management recovered to pre-crisis levels by the end of 2010, standing at about £30.7bn, roughly the same level as 2007 at constant exchange rates. It says: “This might look like an encouraging rebound but it is entirely due to market performance.”

McKinsey says 0.02 per cent of the global asset management industry’s recovery in 2010 is due to inflows.

The report highlights the weak performance of the retail industry, with its inflows outstripped by the institutional sectors in all territories apart from the UK, Japan and Australia.

It adds that while the industry’s profitability is recovering, with operating margins rising from 9.6 basis points in 2009 to 12.5 in 2010, this remains well under the 16.6 basis points seen before the crisis.

The report says: “Despite the signs of recovery, we would argue that the industry’s short-term performance is stronger than its long-term health.”

McKinsey says the industry must halt asset managers’ falling market share, increase its understanding of client needs and overhaul “inefficient and ineffective” business models by reducing complexity and maximising economies of scale.

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