As global asset growth gets offset by competition and new regulation, players must find ways to adapt
As the asset-management industry experiences a broad compression of fees, asset managers must find areas where competing doesn’t mean cutting their profit margins.
In a new report titled Global Markets 2019: Bringing Clarity to an Uncertain World, Cerulli Associates predicted that global assets under management will continue to grow for the foreseeable future. However, decision-makers are increasingly forced to weigh factors including regulation, fee compression, technological advances, and population demographics.
“In addition, we are increasingly seeing regulators seeking to promote investment, particularly saving for retirement, and several countries have introduced legislation that seeks to make the industry more transparent and user friendly,” said André Schnurrenberger, managing director, Europe at Cerulli Associates.
The broad upshot, the report suggested, is a trend of rising costs and fee compression across the industry. In order to adapt, asset managers are exploring disruptive revenue and compensation models, cost-cutting measures, and new revenue streams from broad value-add services.
“Product innovation is another important area and firms should investigate ways to improve operational efficiencies through better use of technology,” the report said.
Cerulli forecasts point to a gradual tipping of market share away from equity and bond funds over the next five years, with alternative and balanced funds expected to benefit. While both active and passive managers have been under fee pressure, fees in the alternative space have reportedly proven more resilient, pushing many managers to expand into the area.
The report highlighted a tightening focus on fees, incentive alignment, and manager selection among sophisticated investors in the U.S. “The country’s mutual funds and hedge funds have been hit hardest by price compression, whereas advisory fees and private equity fees have mostly held steady,” it said.
Focusing on the country’s retail sector, the firm noted how demographic trends are pushing an increased focus on protecting gains accumulated during the near-decade-long U.S. equity bull market. It added that solutions developed for the institutional channel, including pension liability matching, could also be leveraged for retail clients.
The report also highlighted the rise of ESG investing in regions across the world including the U.S., Europe, and Asia. While it recognized the need for ore education on the products, the firm expressed a belief that asset management firms can position themselves for success by demonstrating how such strategies fit into the overall objectives of client portfolios.