Growth in the asset management industry has been confined to a limited number of scattered segments, according to a new report.

The latest annual global asset management report by McKinsey & Company, the management consulting firm, shows that asset managers have lost share in global financial assets in the past four years and that profit levels are well below their levels before the crash in 2008.

The retail segment has taken the biggest hit, with an average yearly decline of 1.6 per cent since 2007. The institutional side has had annual growth of 0.4 per cent over the same period.

The Hunt for Elusive Growth: Global Asset Management in 2012, based on McKinsey’s annual benchmarking survey of around 300 asset managers, found that recovery in the industry ground to a halt last year.

Assets under management as a share of total financial assets globally fell from 25 per cent to 22 per cent between 2007 and 2011. At the end of last year, global AuM stood at $38 trillion.

Profits have declined by almost a third over the same period.

Net inflows have averaged 0.6 per cent a year since 2008, compared to between 3 and 5 per cent in 2002 to 2004.

“Even though the industry is still very attractive, the economics have seriously deteriorated on average,” said Markus Schachner, a partner at McKinsey and leader of the survey in Europe. "Profit margins in Europe have almost reached their all-time low."

Competition from wealth managers and advisors

McKinsey said that flows have been concentrated to a small number of players, especially in the retail sector. The firm also said that asset managers face fierce competition from a range of wealth management firms, both from those of a private client and investment management character, as well as from independent financial advisors.

The fact that these businesses offer similar services but have direct access to their clients means that asset managers may have to rethink their business models, the firm said.

"Success in the future is of course still possible, but will be concentrated on a much smaller number of winning firms," said McKinsey director Martin Huber.

Among the themes the firm believes will dominate the industry over the next few years are a continuing concentration of growth in emerging markets; a "mainstreaming" of alternative investing, which will account for a significant portion of growth across the globe; and growth of objective-oriented solutions, which is shifting the focus from generating alpha relative to specific benchmarks to delivering outcomes that clients need.

McKinsey said that the participants in the survey reflected roughly 60 per cent of total global AuM with representatives from the US, Europe, Asia-Pacific and Latin America.