Asset Management Hits Record Level

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The animal spirits are stirring again in the markets as the asset management industry grows to a record level and shrugs off some of the debilitating effects of the financial crisis.

The amount of money invested globally by asset managers has for the first time surpassed the highs before the 2007-08 crisis, according to Boston Consulting Group, the management consultants.

Gary Shub, partner at BCG, agreed that animal spirits, a term used by economist John Maynard Keynes to describe positive actions because of instinctive optimism, had recovered in the markets, although he warned it was not a fully fledged revival.

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"The worst appears to have passed, but there is uncertainty over the unwinding of quantitative easing and the impact of the eurozone, where there are still problems," he said.

Assets under management (AUM) rose to $62.4 trillion in 2012, a 9 percent increase compared with 2011, when assets were valued at $57 trillion The previous record was $57.2 trillion in 2007.

The emerging markets grew at a faster pace than the markets in the developed countries. AUM in emerging markets grew 16 percent, with China leading the way with an increase of 23 percent.

However, the developed markets still represent about 90 percent of global AUM, growing at 9 percent in 2012. The US grew at 9 percent and Europe increased by 8 percent.

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There was a north-south divide in Europe. Northern Europe, including Germany, the Netherlands and the Nordic countries, grew 11 percent, while southern Europe, including Italy, Spain, Portugal and Greece, shrank 7 percent.

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The rally in equities and parts of the fixed-income markets in the second half of the year were responsible for lifting AUM and boosting profits and investment flows, BCG said.

However, profits were below pre-crisis levels as growth had been in areas that offered lower margins, such as fixed income and passive products. Profits were $80 billion in 2012, a 7 percent increase compared with 2011's $74 billion. This is 15 percent below pre-crisis highs.

Significantly, managers have changed the way they achieve improvement in profits as cutting costs has become a more important way to boost margins rather than attracting new business.

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The industry is also taking on winner-takes-all characteristics. For example, the top 10 US managers took almost two-thirds of all net new fund assets among managers with positive net flows in 2012 compared with 54 percent in 2011.

The big groups, such as Pimco, which runs the world's biggest bond fund, and BlackRock, the world's biggest manager of money, were dominant in terms of winning net flows. The two groups took first and second spot in Europe respectively and second and third respectively behind Vanguard in the US.