For several years we have seen passive investing increasing in popularity and active investing going out of fashion. This move away from active funds has led to fees lowering massively which means the loss of thousands of jobs and forced large scale consolidation among firms which is "pushing the industry towards a shakeout where only the strongest will survive."
Bloomberg shared this fantastic article which is well worth a read. "The analysis uncovers how unforgiving the environment has become for active fund managers that lack scale or a compelling raison d'etre."
Larger asset managers have been able to take advantage of their size and make up for lower fees in other areas/overall expenses. They are also the most likely to offer both passive investments and actively managed funds. The biggest firms are just getting bigger. Outside this top level, firms are saving by trimming staff and others firms are merging to boost assets.
"As the competition for assets has gotten increasingly intense fund managers have been locked in fee wars that have pushed fund charges closer to zero for exposure to broad indexes." Investors are paying a huge amount less than in previous years to own funds which is a huge pressure on the market.
All of the changes in the industry have led to the loss of hundreds of jobs. Many firms have turned to machines to help automate functions and cut costs. These cuts have not been restricted to a particular experience level, top executives have been let go. The industry has seen very high turnover of CEO's and leadership due to the skills needed to handle the evolving landscape not being currently present in these firms.
Mergers and acquisitions have shown mixed results. While BlackRock's case made it the worlds largest money manager a lot of other cases have not produced such impressive results.
"In their scramble for survival and under consistent fee pressure, firms are being forced to adapt. Many will be absorbed by other bigger competitors, some will disappear altogether and almost all will need to either cut costs or hone their strategies to increase profit in these uncertain times." It is a really challenging time for asset managers and a time for flexibility and agility.
Read Bloomberg's full article here.