Despite global economic headwinds, assets under management in the Middle East grew by $100 billion from 2021 to 2022 to reach $1.3 trillion, according to US-based Boston Consulting Group.
This reflects a compound annual growth rate of 7 percent, BCG said in its latest annual asset management report titled “Global Asset Management 2023: The Tide Has Turned.”
“While performing relatively better than their European and American peers, the asset management industry in the Middle East has arrived at a critical juncture, compelling leaders to reassess their organizations’ operations to regain the profit growth they experienced in the previous years,” said Managing Director and Senior Partner at BCG Markus Massi.
He added: “Central banks around the globe are no longer engineering sustained market appreciation. Their goals for the short term are the exact opposite; they are trying to slow growth to combat inflation which will have an impact, especially on equity markets.”
The report also noted that global asset managers’ annual profit growth will be around half the industry average of recent years given the existing pressures and market expectations.
In order to return to historical levels, asset managers will need to slash costs by 20 percent overall and shift their revenue mix to generate at least 30 percent of their revenue from higher-margin products, the report stressed.
To thrive in the years ahead, a focus on profitability, private market opportunities in high-growth alternative investments and personalized client experiences should top the leadership agenda, the report emphasized.
Profitability can be achieved by understanding the expenses and drivers in each function and using multiple initiatives to optimize costs, rather than just cut expenses, the report clarified.
In terms of private markets, companies should pursue high-growth alternative investments and unlock potential private market opportunities.
Given the high preference of regional investors for private assets and the lack of other alternative investment instruments, asset managers in the Middle East should pursue private market opportunities.
Furthermore, in comparison to traditional approaches, innovative technologies can boost personalization efficiency and effectiveness in the sales and marketing process, thereby leading to a surge of about 20 percent in sales conversions, the report highlighted.
“In an environment where growth is no longer guaranteed, where fees are being compressed, and where passive investing is increasingly popular, the Middle East’s asset management industry is facing a crucial turning point,” Principal at BCG Farouk El-Hosni explained.
“In fact, it is now time for leaders to reexamine their organizations’ strategies to take their fair share in the market growth and accelerate profit contributions,” he concluded.