Asset managers have seen higher profitability in 2010 than in 2009, but they still face a number of challenges: an increase in investor demands, changing products, tighter regulations, and diversity of markets, according to a study released on Monday by The Boston Consulting Group.

The ninth annual study of the global asset-management industry, “Building on Success: Global Asset Management 2011,” revealed that professionally managed assets jumped 8% to $56.4 trillion in 2010, driven primarily by the equity markets.

But not all regions expanded equally in 2010. Latin America soared 18%, the strongest growth, while North America’s assets under management shot up 8%, led by the United States at 8.5%. Europe rose by 7%, Japan and Australia had a combined increase of 2%, and the rest of Asia jumped 11%, slower than before the crisis.

The increase in assets under management meant an increase in profitability for asset managers, with average revenue margins increasing to 29.8 basis points, up from 29.0 basis points in the previous year. Costs also remained about the same at about 20 basis points in 2010. Profit margin as a share of net revenues reached 33%, up from 31% in 2009, but still lower than the 39% from before the crisis.

Higher profitability has meant less consolidation in the industry, although consolidation will continue, according to the report.

“Economic uncertainty lingers,” said Kai Kramer, a BCG partner and a coauthor of the report. “Investors are becoming ever more demanding, and the full potential of money in motion will be difficult to capture. The question of how to achieve further growth in both mature and emerging markets is a daunting one. Asset managers will need to forge thoughtful strategies in order to build on the successes we have seen.”

Challenges still remain in the industry: The financial crisis and economic uncertainty has made investors tougher on their asset managers. While markets have improved, both institutional and retail investors are asking for better performance and transparency. Products are changing. One trend the report mentions is the faster growth in passively managed and alternative products, compared with actively managed products. Meanwhile, regulation is increasing for banks, insurers, asset managers, and other

providers of financial services. Challenges also differ by region, the report points out. In North America, Europe, Australia, and Japan some asset-management products are stagnating, which will likely mean growth will be at a modest pace. Developing markets such as Latin America and many parts of Asia will likely grow at a faster pace, though from a lower base of assets under management, the report added.

The report offered advice to asset managers:

  • Develop very clear value propositions to differentiate your practice
  • Focus more on the end customer
  • Streamline the product portfolio. Many asset managers keep underperforming products in portfolios too long.
  • To pursue growth in other regions, first develop a clear view about which markets to enter given current capabilities and resources. Make sure to accurately assess the level of competition in the new market.
  • Decide where not to be in terms of regions, products, and client segments.

“Surprisingly,” said Kramer, “some asset managers begin their foreign expansion initiatives without fully addressing these basics.”