The Asset Management Industry in the United States

Published by the Economic Commission for Latin America and the Caribbean (ECLAC)

Abstract

Asset Management is an agency activity in which financial assets are managed on behalf of end investors, institutional and retail. The industry that manages these assets has gotten very large, grown extremly rapidly, and is expected to keep growing apace. Three main factors are driving this rapid growth in the asset management industry: (i) the global pool of savers has become larger, older and richer; (ii) the sharp rise in the ratio of global wealth to income; and (iii) the cutback in the adequacy of socialized/institutionalized means of saving such as social security and defined benefit pensions for which private asset management has become a substitute.

The rapid and expected continued growth of the Asset Management Industry has been accompanied by concerns about the impacts of the industry on savings security and over all macroeconomic stability. These include concerns about, concentration and interconnectedness, illiquidity, and pro-cyclicality. These concerns are relevant to the entire industry, but they are especially relevant to the US financial asset management industry because the US industry is the largest and, arguably, the most innovative in the world.

This paper describes the dimensions and activities of the asset management industry in the United States locating the industry in the global context. It also discusses the evolution of asset management strategies utilized by the industry, setting up the discussion of the potential risks associated with this set of strategies and identifies the potential risks to the industry and explore the overall risks they raise for the global financial system. Finally, it provides regulatory responses to deal with these potential problems and briefly summarizes some suggested modifications of regulations to address these shortcomings.