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New technology is disrupting asset management

Illustration: Aïda Amer/Axios

New technology is reshaping asset management for a new generation of workers, and most of the industry has not kept pace.

Why it matters: Asset managers are in danger of being left in the cold as individual investors are forced to take control of their retirement savings, and more money shifts to passive strategies.

  • "The change is accelerating with tech and data and analytics in the asset management space, and companies need to really hurry up and get their house in order before they start being disrupted," Boston Consulting Group partner and managing director Lubasha Heredia tells Axios.

By the numbers: The value of assets under management (AUM) fell by 4% globally in 2018, to $74.3 trillion from $77.3 trillion, the first significant year-over-year decline since 2008, according to BCG's 2019 global asset management report.

  • North America saw the biggest decline, with managers recording $2 trillion of outflows over the course of the year, accounting for two-thirds of the global loss in value.
  • Total assets under management declined in almost all regions, largely because of the global market selloff during the fourth quarter.

Active management fared particularly poorly, losing $1 trillion in AUM last year, continuing a long-term secular trend.

  • Over the past 15 years, actively managed assets have declined significantly in popularity, BCG's data shows.
  • They now account for just $1 out of every $3 of assets managed, versus more than $1 out of every $2 of AUM in 2003.

Between the lines: As people move their money out of actively managed funds, they are being drawn to products that offer high-tech options that provide many of the same services as traditional financial advisers but at a fraction of the cost.

  • Many small and mid-sized asset managers are simply unable to compete and are being "squeezed out" of business, Heredia says.
  • That's creating a space where only very small niche players and massive asset management conglomerates like Vanguard and BlackRock can survive.
  • Heredia is also expecting digital giants like Google and Amazon to move into the space, as Alibaba's Alipay has done in China.

What to watch: China is expected to become the second-largest region for asset management — ahead of continental Europe — and will attract more flows than the U.S. over the next decade, BCG's data shows.

  • The firm also expects that sustainable investing will rise as firms weave environmental, social, and governance factors into their investment decisions, aiming to create positive impact without undermining returns.

Go deeper: HSBC hops on the robo-advising bandwagon