As the industry stands at the cusp of a new decade, players must carefully consider their path forward to thrive
2018 was a challenging year for the asset management industry. According to Boston Consulting Group (BCG), global AUM tumbled by 4% from US$77.3 trillion to US$74.3 trillion, marking the first significant annual decline since 2008. North American AUM shed US$2 trillion in value, with managers in the region getting whipsawed from gaining 13% in AUM in 2017 to losing 5% in 2018.
Despite that, BCG said, asset management remained on fundamentally solid footing with nearly US$100 billion in operating profits. But to keep the profits coming through the 2020s, the firm emphasized, asset managers must adapt to major changes.
“The 2020s will be a new world, and strategies that set asset managers up for success in the past may not suffice in the future,” the firm said in a new report titled Global Asset Management 2019: Will These ‘20s Roar?
The firm foresees a sharper contrast between two basic paths to success: operating as a boutique alpha shop or becoming a distribution powerhouse. Being a small company that’s focused on consistent, superior performance will require three key factors:
- Access to the best investment and research talent;
- Tailored sales and marketing engines; and
- A pioneering use of data and analytics for investment purposes
“To enable this last success factor, asset managers may want to build dedicated teams that scour the field for promising new fintechs and other partners,” the report said. Data scientists and technologists, it suggested, may also be brought on board to let the firm tests new ideas and rapidly integrate them into the investment process.
On the other hand, BCG said asset managers that succeed through scale will have more than US$1 trillion in AUM. For this branch of success, there are four requisite factors:
- Superior branding, sales, and marketing;
- Advantaged and personalized access to intermediaries (and, where possible, to end customers);
- A complete and dynamic product lineup; and
- A scalable and efficient technology and operating model
“The wild card with regard to these developments is possible disruption from digital giants,” the report said. Such BigTech firms, it noted, would have a level of digital expertise and direct-to-consumer marketing prowess that goes far beyond what even the largest and best-resourced asset managers can manage.
Aside from superior quantitative data, tools, and technologies, tech giants may also leverage proprietary data and information on customers they interact with daily. Automated and highly flexible systems, which reduce the barriers they may face in adding new business, could also prove to be an edge should they encroach into asset-management territory.
