The landscape prior to/during COVID-19:
Even before COVID-19 hit the globe, the asset management industry was grappling with the need to evolve and transform business and operating models due a number of converging factors:
- Top-line revenue growth has become harder to achieve alongside increased competition for assets under management (AUM) and downward pressure on management fees – profitability has been declining as margins move towards historic lows
- Asset managers and hedge funds were focused on increasing investment into their infrastructure in the light of these downward financial pressures – to achieve the right balance of outsourcing/co-sourcing/insourcing and to attract and retain the right talent
- With client demand for frictionless interactions growing, the need to increase digitization has become a priority, including the development of online platforms and advisor technologies. During the pandemic, this was brought to the fore internally as businesses moved to remote working – operational bandwidth and capacity, separation of teams, security and fraud, all became key issues
What will the New Reality look like?
The effects of the COVID-19 experience will be to greatly accelerate the shifts that were already taking place. They have moved from strategic priority to strategic imperative.
- Digital or bust – there will be a greater sense of urgency to digitize operations, internal working, data usage, and client interactions
- Stratification of the market - redemptions and liquidity management issues affected some markets and will lead to consolidation – with few large players and smaller asset managers as specialized boutiques. Some markets will see the rise of megafunds
- Resilience of the supply chain and third party due diligence will be key and will have implications on sourcing strategy (asset servicing)
- The evolution of partnerships and channels is inevitable, with technology and new players providing advanced personalization and slashing fees – raising obvious challenges for asset managers
- As more platforms begin to sell directly, partners may become competitors – asset managers will need to take increased customer responsibility via marketing & sales channels. At the same time, new partnerships with FinTechs will be important to help drive innovation and new routes to market
- Asset classes will be re-evaluated. In Real Estate, bricks and mortar retail, and commercial real estate, are likely to become challenged – whereas by contrast the warehousing and logistics industries are already experiencing a surge
- ESG investment will become ever more central. COVID-19 has accentuated the sense of the importance of local communities and support mechanisms, sustainability and low carbon assets, ethical values and strong governance. Asset managers will need to clearly position themselves around this responsible investing agenda
What do organizations need to consider?
- Strategic evaluation – where will you play in a contracting and shifting market? Re-evaluate your strategy to achieve your growth ambition. Are there suitable targets for acquisition in markets where you need to grow? Do you have the right on/offshore model?
- Digital transformation – digital distribution solutions and operational transformation, intelligent automation of workflows, systems migration to the cloud, collaboration platforms, integration of technology into fund strategies – all of these must now be expedited.
- Partnerships – these will be key to maintaining presence as the market shifts and evolves. Have you identified the partners, alliances and vendors that will help co-develop and distribute products and services to advisors and retail investors?
- Portfolios – with strong downside protection strategies and deeper ESG integration
- Processes – with strong liquidity management measures, robust internal/external controls and governance arrangements; enhanced near real-time communication between
- People – internally and externally, with a human and engaging tone
- Innovation and adaptability – developing the ability to adapt to market conditions with new variations to products and services, willingness to experiment with revenue models, and enhanced speed to change
- Clarity and agility – organizational alignment around what is core to the business and a multi-skilled management team who can be redeployed as required, providing the ability to ramp up or down based on client and market demand