To compete more effectively with foreign and independent asset management companies and unlock the franchise value of their investment subsidiaries, Continental Europe’s banks and insurers, owners of over euro 12 trillion in managed assets, must embrace significant structural changes, according to a new report by Casey, Quirk & Associates, a management consultant focused on the global asset management business.
While the wholly owned asset managers of Continental Europe’s banks and insurers control approximately 30% of the world’s total in managed assets, their growth rate in the five years through 2010 trails that of U.K., U.S., and Australian counterparts, and they have steadily lost market share to foreign entrants in their principal market, long-term European mutual funds, according to Casey Quirk’s white paper, Untapped Opportunity: Realizing Value in Continental Europe’s Asset Managers. By adopting growth strategies highlighted in the study, Continental Europe’s banks and insurers can unlock an additional euro 175 billion of franchise value from their asset managers by 2015, increase revenues by 24%, and add euro 2 trillion-plus in new client money.
Offering equity linked to long-term asset management performance will help European banks and insurers battle more effectively in the war for talent, according to the report. Investing in distribution channels that are not affiliated with the parent banks and insurers is another crucial growth initiative, according to the Casey Quirk study, along with rationalizing the array of investment products offered, and determining whether to fully globalize or retrench to concentrate on select European markets.
“These changes will spur growth in Continental Europe’s asset managers and make them as competitive as their foreign counterparts, both at home and abroad,” said Kevin Quirk, partner at Casey Quirk and one of the report’s authors. “Moreover, these enhancements will create significant value for their parent banks and insurers, a critical advantage in Europe’s crowded financial services marketplace, where fierce competition for shareholder capital has begun.”
Continental Europe’s asset management operations are worth approximately euro 150 billion today, according to Casey Quirk’s analysis. That’s the equivalent of approximately 7% of the current estimated enterprise value of Continental Europe’s banks and insurers. Optimizing growth strategies recommended in the report – through a combination of stronger asset-gathering, higher fee realization, and greater efficiencies – would boost their valuation to a level approximately that of listed money managers, according to Casey Quirk.
“Historically, Continental European banks and insurers have viewed their asset management operations more as utilities that provide services to their other core businesses,” said Ben Phillips, a Casey Quirk partner and co-author of the report. “The 2008 global financial crisis significantly changed perceptions within Continental European banks and insurers by illuminating the inherent value asset management can have relative to other financial services franchises. Shareholders, too, increasingly realize this and are willing to pay a premium for financial services companies with vibrant asset management businesses.”
About Casey, Quirk & Associates LLC
Established in 1987, Casey, Quirk & Associates is a management consultant focused solely on advising investment management firms worldwide. We help our clients develop business growth strategies, improve investment product prospects, evaluate new opportunities, and enhance incentive alignment structures. Our industry knowledge and experience, proprietary data, and global network of relationships make Casey Quirk the leading advisor to the owners and senior executives of investment management firms globally. For more information, please visit our website at http://www.caseyquirk.com
Source: Casey, Quirk & Associates LLC
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