The Future of Asset Gathering
NeoBeta is a think-tank of how the asset and wealth management industries are evolving and how they
can future-proof and grow their business models...
can future-proof and grow their business models...
Something big is happening in Traditional Fund Management
Something is different in traditional investment management. The landscape is changing - powerful structural forces are at play and the winds of change picking up. This report aims to shine a spotlight on the tectonic shifts that are re-shaping the investment management industry.
All role players in the investment management industry are experiencing the same sense of trepidation about where things are going as business models and value propositions are being challenged, from fund managers (manufacturers) to advisors (intermediaries) to wealth managers and investors (consumers).
But signs of change have been there for a long time. For example, mergers and consolidations of major, blue-chip asset management firms, many of whom have been around for decades, are rapidly escalating. PwC’s recent global survey of 500 asset management firms found that three-quarters are considering merging or acquiring a competitor. PwC also predicted that one in six asset managers will go out of business or be bought up by a bigger group by 2027.
Modular Adaptability: The Evolution of Investment Management
Mass Customisation is the fastest asset gathering model but it requires portfolio and risk technology coupled to dynamic client data. Fund Managers are unable to mass-customise financial solutions as they have lost touch with the end client or investor as intermediaries now own the client data. This is leading intermediaries to build their own portfolio solutions such as balanced funds...
We grow our wealth faster by explicitly minimising loss, rather than by implicitly trying to beat benchmarks...
Therefore, the future for asset gatherers is about who can manage risk. This requires the implementation of adaptive Risk-Budgeting, using the latest global cross-asset risk technology, rather than relying on traditional human skill
Fidelity realised that traditional fund management was broken and reinvented itself with new distribution models and radical new portfolio technology
Case Study: Fidelity does a 180
One of the most legendary traditional active stock-picking firms, Fidelity, was steeped in trying to beat benchmarks and known for its star managers, like Peter Lynch, who boasted enviable track records that made any advisor or wealth manager throw client assets at them. But, around 2010, Fidelity lost its way and was on the brink of being marginalised (like Kodak or Nokia) by refusing to fix what it thought wasn’t broken.
Fidelity was in deep trouble, with no real competitive advantage, massive asset outflows and no strategic direction. When Abigail Johnson took the helm of the firm that her grandfather founded in 1946, she started cutting costs, improving efficiencies - and started spending aggressively on technology, particularly data and risk-index platform technology that relied far less on human judgement in portfolio management. Effectively Fidelity pivoted from traditional fund management to becoming a
new-age mass customisation platform.
Selling the Parts vs Selling the Sum of the Parts
De-Aggregation to bring Valuable New Growth
Large fund management houses that run traditional, aggregated, balanced funds can also start to offer ‘de-aggregated’ versions of their internal teams, boutiques and thematic portfolio strategies to external aggregators. Offering 'dual distribution' with direct access via listed products, provides valuable new revenue growth.
Active ETFs and other Non-Fund Wrappers will rapidly outgrow Traditional Funds
Fund managers need to find new ways to monetise and distribute their portfolio management capabilities, rather than their funds. This is because funds cannot facilitate individual risk-budgets or mass customisation.
When a manager lists their traditional fund as an Active ETF, it changes its status from a one-size-fits-all fund to a customisable portfolio ‘Ingredient’.
The 2023 Oliver Wyman report into ETF trends supports this view: “The exchange-traded funds landscape is just embarking into a next stage of growth — this time fuelled by the rise of active ETFs.”
Strategically, instead of merging with other traditional fund managers, a better option is to rather partner with industry role players who specialise in
what fund managers don’t have. High growth will come
from access to these three strategic advantages...
what fund managers don’t have. High growth will come
from access to these three strategic advantages...
Advances in vehicle safety have almost exclusively been focused on technology, rather than on ways to improve driver skill. The same will
be true of Portfolio Risk Management.
To find out more, download our global report or contact us
