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By M. Isi Eromosele
With currency and debt issues at the forefront, the world's financial
markets remain volatile and uncertain. While uncertainty opens up opportunities
for astute asset managers, it also exposes them to significant risks.
Many asset managers are struggling to chart a clear course
toward sustainable growth and strengthened competitiveness given the new
realities in global financial markets and the asset management industry.
As such, it is time to take a fresh look at asset management
in light of the fundamental changes that are now taking place in global markets.
Asset Management
There are four key factors that are vital to an understanding
of the asset management industry. The first is the essential nature of the
asset management market, the assets invested and the regulations to which the
market is subjected.
Second, analysis of the business models operated by market
players and their value creation logic gives a better understanding of how and
where value can be generated.
Clients and their needs, with a distinction drawn between
private and institutional investors are the third key factor. Lastly, market
offerings and how they are likely to develop.
Asset management comprises three concepts: asset structuring,
investment management and investment management services.
- Asset structuring refers to all activities that play a part in structuring or "wrapping" assets (i.e. building a shell or umbrella around assets or portfolios of assets, as is the case in fund-of-funds solutions, for example). Long-term asset allocation linked to possible liabilities is a core result of this process.
- Investment management is the core discipline in "classical" asset management. Although the terms are often used interchangeably, investment management refers only to the investment decisions made on a day-to-day basis within the limits of the defined asset structure.
- Investment
management services include elements of financial analysis/ research, plan
implementation (e.g. trading services), ongoing monitoring of and risk
analysis for investments and comprehensive reporting on value added and
value at risk, for example.
Distribution concerns itself with how asset management
services and solutions are sold to either institutional investors or private
investors (e.g. via funds). Distribution channels vary widely depending mainly on
the business model.
There are three main drivers of structural change in the
global market that have a powerful bearing on the asset management industry. One
is a shift in the global weighting of assets under management, as rising
prosperity in emerging markets tilts the scales toward Asia
in particular.
The second involves changes in the regulatory landscape (with
regard to pension plans, for example), which will directly and indirectly
affect asset managers. And perhaps even more fundamentally, the third driver is the aging population
and the general demographic shift that the world is experiencing. As
demographic patterns change, so does the spread of asset holders and what they
do with the funds they have to invest.
What Do Clients Want?
In what is a traditionally product-driven industry, the
balance of market power is gradually shifting toward the retail and
institutional investment clients that make up the demand side of the equation.
Though clients long willingly trusted their advisors to "know
best", they are now becoming better informed, more professional, more
focused on outcome-driven investing and
more willing to pull the plug when they are dissatisfied.
Asset managers must now pay much more than lip service to
client service issues, a capability that is as rare as it is valuable. Proving their
ability to manage risks will in future be an integral part of the trust-building
that is now more vital than ever.
Strategic Implications For Asset Managers
There are significant strategic implications for asset managers
as they look to position their business models for future success:
Implications for the market: The most attractive
market segments in terms of future asset inflows will differ from region to
region. Asset growth in specialties and in exchange-traded funds will be strong
in Europe , whereas pension funds will lead the line in Asia .
Implications regarding players: The trend toward
specialization along the value chain will continue, as this approach holds out
potential to add more value. Independent financial advisors (IFAs) will play an
increasing role in asset management distribution. More generally, asset
managers will have to adopt a clearer positioning in the value chain.
Implications for the demand side: In the retail
business, values-based client segmentation will lead to more actionable
insights than a pure wealth-based approach. In the institutional business, greater
professionalism will drive more outsourced portfolio management and underscore
the importance of risk management.
Implications regarding offerings: Asset managers will
have to diversify to protect assets across multiple classes as core/satellite
investment approaches require the combination of multiple strategies. Focusing on
core capabilities will be decisive.
Asset managers must focus on their specific strengths in
five dimensions: financial market intelligence, products and pricing, distribution,
branding and operations. At the same time, based on the strategy they choose, they must
systematically come up with excellent answers to clients questions.
M. Isi Eromosele is
the President | Chief Executive Officer | Executive Creative Director of Oseme
Group - Oseme Creative | Oseme Consulting | Oseme Finance
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2012 Oseme Group
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