AUM Within Institutional and Retail Channels Nears Equilibrium
December 16, 2022 — Boston
As growth in the retail channel accelerates, asset managers should consider their approach to this segment of the U.S. market
New research from Cerulli Associates finds that professionally managed assets in the U.S. stand at $68.9 trillion and marketshare between retail and institutional is at a nearly 50%/50% split. Retail client channel assets recorded 17.5% asset growth during 2021, inching closer to surpassing institutional client channel assets. Institutional channel assets maintain a slight $124 billion lead; however, industry dynamics will soon lead to a passing of the torch, according to projections found in The Cerulli Report—The State of U.S. Retail and Institutional Asset Management 2022: The Growing Importance of Retail Client Channels.
Both channels hover at $34 trillion, with retail client channels gaining nearly one percentage point during 2021 and institutional client channels suffering a marketshare decline of nearly 10 percentage points since 2011. “As defined contribution (DC) plan assets roll over into individual retirement accounts (IRAs), defined benefit (DB) plans freeze or terminate, and insurance general account growth remains low due to higher allocations to fixed income, the retail channel will likely surpass the institutional channel within the next few years,” remarks Brendan Powers, director.
From a distribution perspective, third-party intermediaries continue to grow in importance for institutional and retail channels. According to the research, third-party-distributed assets in the retail channels have nearly doubled since 2016, growing from $13.2 trillion to $25.9 trillion. Similarly, a majority ($18.6 trillion) of institutional client channel assets are distributed through third parties. “Asset managers need to have a distribution strategy and staff focused on investment consultants, outsourced chief investment officers (OCIOs), broker/dealer (B/D) home offices, and registered investment advisor (RIA) aggregator centralized investment functions,” Powers explains. “These gatekeeper relationships will eventually become table stakes for access to many types of institutions or financial advisors.”
As managers respond to evolving market dynamics, they will need to reconsider their product lineup. Looking forward, Cerulli believes that more investors (retail and institutional) will consider a vehicle-agnostic approach to how they consume asset manager investment strategies. “Based on our research, the dominance of mutual funds and institutional separate accounts are expected to erode, but not disappear. Use of ETFs, retail SMAs, private funds (e.g., CITs), and illiquid alternative structures are expected to grow,” states Powers. “Firms need to closely evaluate which vehicle structures their target client segments want to use, as well as which vehicle structures make sense based on the investment strategy they are looking to offer,” he concludes.
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