There is no strategic blueprint for a generic asset manager, and we cannot determine your best strategy. But we can provide hard to acquire facts from statistics to remove uncertainly relevant to determining strategy.
 
In determining strategy, how much do you rely on data? For example: Do you know the current median WACC of your competitors? How consistent is the price elasticity of demand for AuM over different prices? Which M&A transactions create value? Which costs lead to higher and lower profitability? Which regions have the best returns? In which aspects is the industry changing or staying the same? Does higher compensation translate into better investment performance which translates into higher net inflows which translate into higher return on capital?
 
This paper seeks to fill a niche to provide a quantitative review of particular strategy actions, particularly around the impacts of costs on manager KPIs. We unveil results from new research about the global asset management industry. The conclusions are the result of multi-year data collection and statistical analysis using LQR’s proprietary time series data sets tracking the global industry. The paper builds on the results from our annual industry report series covering many quantitative aspects of the global industry; here we take a closer look at the mechanical relationships on profitability measures. 
 
In identifying key statistical relationships, we look to provide the basis for sound strategic decision making for C-suite executives. We want to give answers on how the industry works based on our quantitative research. We identify relationships such as operational efficiency persistence, prototypical AM cost trends, and around distribution fees, investment performance, net inflows, and M&A. 
 
Why this paper, why now? We've reviewed the offerings from consulting companies on the AM industry and it's bleak: glib, fearmongering consultants, anxious from coffee and lack of sleep, poor statistical inferences with too little or selective data sets, conclusions with only half the picture. There is little data on trends for costs for AMs, there are few quantitively justified opinions, many unfounded assertions, very little quantitative strategy research, and even less on impacts of costs on profitability measures.
 
Table of Contents
Executive Summary
Introduction: The World Changed
Industry Steady State
Profit Growth: Barely Keeping Up with GDP
Profit Margins: Fabulous but Flat
Beware Falling RoC
Steady State
Areas of Change
Cost Trends
Strategy Analysis
A Note on Agency
1. M&A
2. Distribution
3. Investment Performance
4. Pricing
5. Cost Reduction
6. Technology
7. Product Suite
8. Sales & Marketing
9. Leverage
10. Regions
Overall
Cost Levers
Employee Compensation
Marketing Cost
Distribution Cost
Technology Expense
Interest Expense
General Administration Expense
Management Fees (AuM Margin)
Investment Performance
Overall
Conclusion
Appendix
References
Abbreviations
Notes to the Data
Vanguard's Price Function
Price Elasticity of Demand Calculation
Cost Lever Notes
Heteroskedasticity of Investment Performance to AuM
Investment Performance and Employee Compensation
Multifactor Cost Regression of OPM