Asset managers expect it will take four to seven years to recover the assets under management lost during the recession, according to McKinsey & Co.
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 research it released Wednesday. The company said this is more than twice the 10% to 15% cost reductions that asset management firms have budgeted for this year.
"More firms will need to begin fundamentally restructuring their costs," David Hunt, a senior partner at McKinsey and a co-head of its wealth and asset management practice, said. "We are in for four to seven years before assets under management catch up to where they were, but despite this, few have taken action to lower costs."
Hunt said 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.
The study surveyed more than 100 firms that collectively manage more than $9 trillion of assets. Hunt said to "survive and thrive," asset managers must develop business as markets recover.
"You can't cost-cut your way to success," he said. "To separate the winners from the losers, companies will have to find ways to invest in order to capture growth."
Asset managers that use the next few years to hire and develop certain business segments could benefit down the road, Hunt said. "The good news is, we have never seen such an attractive market for talent," he said. "We had a bit of a brain drain over the past couple of years. Now, things are moving back the other way."