In an analysis of independent and bank- and insurance-owned money and wealth managers worldwide, Casey, Quirk & Associates predicts major shifts in the forces driving the fund business. The report covers the mutual fund, institutional, private equity and hedge fund firms.
The 2008 financial crisis, the report begins, "loudly marked the end of the industry’s adolescent growth spurt." Revenue growth in the next five years for the investment management industry will continue to slow, with net flows accounting for less than 1% of annual growth, compared with 6% to 7% pre-crisis.
Investors will continue to focus on outcomes over benchmarks. As such, they will favor firms who are able to deliver one or more of the following value propositions: high-alpha active management, cost-efficient beta, asset allocation expertise and solutions-led distribution. Cater to investors, especially since individual investors will drive asset management business growth going forward, providing around four-fifths of an anticipated $40 billion of net new revenue over the next five years.
Firms that provide uncorrelated and active equity, low-cost indexing, alternatives, multi-asset solutions like target date funds and liability-driven investing will take over as the most successful in the business, the report stressed. Key drivers for growth will also include democratization of alternatives, increasing popularity of customized and packaged investment solutions, globalizing portfolios, growing assets of wealthy individuals, and the rise of investors in emerging markets.
Other tactics that asset managers can employ to better serve the changing needs and wants of investors in the next five years include organizing well-led and resourced sales and marketing efforts, building strong technically skilled client interfaces, and implementing aggressive incentives for hiring talent.