Industry Study Shows Asset Management Model is in Transition

An independent study from CREATE-Research, commissioned by Citi’s Global Transaction Services and Principal Global Investors (Principal), has found that asset management business models are in transition as the industry adapts to dominant investor concerns about liquidity and capital protection in a new, competitive landscape.

Based on a global sample of 237 asset managers from 29 countries, with combined assets under management (AuM) of US$29 trillion, the study entitled ‘Exploiting uncertainty in investment markets’ aims to provide an early indication of how asset managers worldwide are adapting to the post-credit crisis environment, what the emergent business models will focus upon and where growth will be coming from over the next three years.

Respondents to the survey estimate that asset growth will be dominated by significant rebalancing of existing allocations; with the volume of new money in motion remaining small. Over the next three years, only a third of assets will mark fresh inflows from sovereign wealth funds, national pension funds/central bank reserve funds and defined contribution (DC) and defined benefit (DB) plans. The rest will be switched assets from wholesale packagers, DC plans helped by the closure of DB plans and outsourced insurance assets. As a result, competition is expected to intensify further as money moves between geographic regions, asset classes and client segments.

With an increasingly professional, more diverse and more demanding client base, asset managers are already improving their product proposition by enhancing capabilities in asset allocation (54%), absolute return (21%) and product innovation (53%). Furthermore, they are improving service standards and raising technical collaboration with consultants and fund platforms, to broaden distribution.

Professor Amin Rajan, CEO of CREATE-Research and the study’s author, said: “The credit crisis is in the rear view mirror. But its after-shocks continue to rattle the markets and a thick fog of uncertainty is presiding over the competitive investment landscape. The small group of asset managers who suffered least had clear financial and non-financial alignment of interests with their respective clients, backed by operational excellence. As a result, asset managers are turning the spotlight on their own offering. They are attacking inefficiencies that have long tended to conspire against the interests of their clients.”

Currently, 50% of asset houses operate as integrated producers. According to the study, the number will decline and multi-boutiques will become the dominant operating model among medium and large asset managers over the course of the next 10 years. Currently independent boutiques represent 7% and integrated boutiques represent 28% of the market. Creating a small company mindset in a large company environment helps to foster principles of meritocracy, personal accountability and leadership. Being more nimble and focussed, boutiques will be better placed to meet client needs.

Furthermore, over the next three years a fiduciary overlay will differentiate the winners from the losers. Success will require asset managers to exercise ‘duty of care’ by developing a fiduciary overlay that delivers five things:

  1. Consistent returns.
  2. A deep talent pool.
  3. Exceptional service.
  4. A value-for-money fee structure.
  5. A state of the art infrastructure.

The overlay seeks a three-way financial and non-financial alignment between: asset managers and their clients; asset managers and their professionals; their professionals and clients.


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