Investment Management and Service Sectors: The pace of change accelerates
As the pace of change in the Investment Management and Service sectors accelerates, we, at marketßeta, share our thoughts on some of the themes impacting the industry.
1. Asset Owners take greater control. Asset owners are taking greater control of their investments both at the retail and institutional level. Driven by increasing needs to control costs, simplify oversight, and increase customisation, we see significant pressure on fees, resulting in changes in terms of what is invested in.
Asset owners are going back to basics and asking: who, what, how and why – and the industry needs to demonstrate their value proposition.
2. Asset movements. We identify 5 core areas that are driving a movement in assets in addition to the traditional macro themes of demographic shifts, geo-political and economic changes.
Value for money. The focus on cost is shifting assets towards lower costs strategies and more cost efficient vehicles such as ETFs. Investors and regulators are demanding greater transparency around fees and alignment of fees with performance.
Governance. Increasingly Asset Owners ESG requirements are being incorporated upstream in investment philosophy and process, resulting in major changes to the whole investment selection and management process. These changes apply not just to the assets invested, but to the oversight governance of the industry.
Regulation. Continued and significant regulatory changes evolve as regulators expand their supervision and increase scrutiny on financial stability. High profile cases have investors calling for key reform and accountability.
Outcome oriented investing. Improving risk-return profiles have shifted assets from Public to Private market investments and Emerging Markets with China growing in significance. Accessing illiquid and alternative asset classes in liquid vehicles presents a number of challenges. New approaches are shifting the focus away from products to solutions.
Technology. Asset Managers are increasingly deploying FinTech and emerging technologies in 3 areas: 1) investment Content (AI for new Indices and alpha sources), 2) back office (automation of process) and 3) client data analysis.
Increasing pressure on costs and increasing complexities of the business is driving the need for improved business model efficiency. New entrants, tech focused firms and partnerships, with key technology advantages and little legacy baggage are starting to make material progress starting with banking and payments into shifting to savings and investments.
The agility to move with the assets is critical to success.
3. Value chain evolution. As the total level of fees continues to decrease, the allocation of revenues across the ecosystem is also evolving. Asset managers represent c50% of the investment services value chain but are under significant pressure to maintain margins. At the same time, there is movement in the value chain between the index & data vendors, exchanges, distribution intermediaries and third-party service providers.
New entrants and firm boundary movements are gaining in number and momentum.
The pace of change is accelerating, but so are the opportunities to succeed.
We welcome your thoughts as we continue the conversation.