Independent asset managers are more efficient, research finds

A study of the cost-efficiency of asset managers in the UK has confirmed what was until now an uncorroborated fact in the industry: independent asset managers have more efficient cost structures.

Independent asset managers are significantly more efficient than their peers as the top five spots in the efficiency ranking are occupied by five independent asset managers, with the highest scoring 87.0%, found a study by CoreData Research (100% being the perfectly efficient asset manager).

In fact, with an average efficiency score of 77.3% over the period 2004-2011, they have clearly outperformed their bank-owned and life and pensions affiliated competitors, which scored 70.2% and 65.3% respectively.

Jorge Retana, consultant, CoreData Research says: “Independent businesses tend to benefit not only from having smaller workforces but also having the flexibility to adjust their human capital costs at a swifter pace than an average typical institutionally owned business where people can either ‘hide’ or inefficiencies become harder to identify as quickly.

“If you have 10,000 staff versus 500 then the added layers of management required needed in order to keep the organism of the business operating are greater. The irony though is that greater levels of management drive greater inefficiency.”

The independent asset managers included in the study have just under £150bn in assets under management on average, while life and pension institutions and bank owned asset managers have £190bn and £277bn respectively.

In 2010 asset managers with fewer than 1,000 employees had an average efficiency score of 74.1%, sensibly higher than asset managers with between 1,000 and 3,000 employees with a score 70.3% and those with more than 3,000 employees with a score of 65.6%.

The trend of smaller asset managers being more efficient on average appears to be consistent over time, as companies with fewer than 1,000 employees outdo their larger peers every year between 2008 and 2010.

These groups were also more cost efficient in the midst of the financial crisis with a score of 66.8% for those with less than £100 billion worth of assets under management in 2008.

So growth in terms of assets under management does not appear to create economies of scale, in terms of efficiency. This could be attributed to the fact that the investment management industry is essentially a people industry, with over 60% of total costs being staff costs.

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