A new report from the consulting giant shows strong growth in the money management business

A new McKinsey report puts total North American AUM at $43 trillion. This report notes that the market hit the massive figure after a 7% jump from the previous year. That said, industry profits (not-including alternative investments) declined by 3.7% to just $42.6 billion.

Inside the McKinsey AUM Report

Meanwhile, rising costs are eating into profitability, says McKinsey. The report, “Beyond the Rubicon: Asset management in an era of unrelenting change” hit the markets on Wednesday. The report states that the money management industry in North America faces a “structural transition.”

It explored six primary themes in the North American markets.

1. First, institutions and retail clients are hungry for yield and diversification in a face of slowing economic growth and lower interest rates;
2. Second, investors now expect “good performance at the best price” instead of the more traditional “fair price” model;
3. Third, investors are increasingly challenging the idea of active management;
4. Next, the market now favors distributors and intermediaries;
5. Fifth, the growing need to cut costs and deliver – doing more with less;
6. Finally, the important balance between scope and scale.

Highlighting Alternatives

Meanwhile, the changes in the North American market highlight the importance of alternative investments in the future.

As we noted earlier this week, Brookfield said that since 2009, approximately $6 trillion flowed into private assets. This has also resulted in an increase in the share of total investments for real assets and alternatives. The allocation has further increased from 5% in 2000 to 25% in 2018.

Ultimately, Brookfield believes a low rate world could fuel allocation to alternatives to 60% levels by 2030.