For investment management companies, things should be going great.
The business has never been bigger. Global assets under management are at all time record levels. They hit $151 trillion in 2025 and are continuing to grow into 2026, according to McKinsey.
But this rising tide doesn’t seem to be lifting all boats. Just looking at a number of quoted investment managers, we see a range of returns from their own shares over the past 6 months.
| Liontrust | +16% |
| M&G | +8% |
| Jupiter | +16% |
| Premier Milton | -18% |
| Blackrock | +11% |
| L&G | +24% |
| Aberdeen | +8% |
There are often different stories behind individual performances, but there are also some common drivers and looking at some of the most recent industry analysis these forces seem to be only intensifying.
For example, concentration is not only an issue in the investment markets, but also among the investment firms. It’s only a small number of firms that are consistently growing net flows and margins faster than the rest. In many cases these are the scale players.
This will only accelerate, as concentration is a feature among the fastest growing parts of the market. ETFs are arguably the fastest growing business segment, and in the US the top 5 managers get 94% of net flows. It’s the same picture in Europe with the top 5 managers attracting 75% of net flows. In Private Equity, another growing revenue pool, in the past 5 years, the share of flows to the top ten managers has doubled from 17% to 32%.
So concentration in Investment Managers seems embedded into the future.
The picture on net fund flows remains fairly constant. Active equity is challenged with persistent out-flows to Passive. Active still plays a big role in Fixed Income – exceeding Passive.
And while clients differentiate on price, they also see merit in differentiated exposures which may command a premium. Taking ETFs in the US as an example, McKinsey note that products priced at 10 basis points or less account for nearly 60% of segment assets and 17% of revenue. But that funds with expenses of 50 basis points or more, while they may only get 7% of assets, post 30% of revenues in that sector. So there is a business opportunity for those fund managers with a clearly differentiated proposition.
Where you don’t want to be, is in the “melting middle”.
Another sub-current pointing to continuing concentration is quite simply the cost of growth.
Despite the growth in assets, margins have been flatlining over the past 5 years at about 35% of revenues. The cost of growth is rising. It took 19 cents to earn a new dollar of revenue in 2023. That’s now up to 52 cents, according to the McKinsey report. Managers are having to pay more to support broader product ranges, additional wrappers, more fragmented distribution, regulatory requirements and technology. Scale helps.
Will AI be a big help? Maybe – but right now managers are only receiving the invoice with the productivity dividend down the road.
All investment managers face the same market environment but it’s clear some are better equipped to navigate the various cross-currents. There is a clear barbell with scale players at one end and sophisticated alpha generators at the other. The middle is not a great place to be.
Given where the growth areas are, and the growing costs of accessing that growth, current trends look to have legs.
What’s the biggest threat for the business?
Probably one we have no control over.
In the past 10 years, two-thirds of the growth in global assets came from market appreciation and one-third from actually gathering assets.
A pro-longed market correction would change a lot of the business metrics.
