Revealed: the future for asset management

Author: Gemma Varriale | Published: 28 May 2013
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  • Key industry figures have identified the major trends impacting the asset management industry since the financial crisis, and what they mean for its future development;
  • Chief among these issues was a move towards retail and away from institutional;
  • A trend towards passive investment, lower fees, and demand for asset allocation products also featured prominently among discussions at last week’s ICMA annual general meeting;
  • The barrage of regulation the industry is facing, and whether asset managers should be treated the same as banks, emerged as another key theme;
  • But, said one panellist from the Government of Singapore Investment Corporation, new regulations also present new opportunities.

A shift away from institutional investors and towards retail has topped the list of issues impacting the development of the asset management industry today.

The move is visible in both the pension and life insurance markets.

The global asset management industry continues to adapt to significant challenges. Indeed, since the financial crisis, and the wave of regulations that followed, the business of managing money has been going through a period of dramatic evolution and structural change.

"If we look at the pension fund market, the trend is towards personal pensions," said Robert Parker, chairman of the International Capital Markets Association (ICMA) Asset Management and Investors Council (AMIC) and head of the Strategic Advisory Group at Credit Suisse. "In the life insurance market the trend is towards personal life insurance policies."

The second theme was a move towards passive or indexed investment.

"I stick very strongly to the view that the exchange traded fund market will continue to be one of the fastest growing markets in our industry," said Parker.

Third was the shift towards lower fees - a development that has been seen for several years. "I think that trend is very sustainable and therefore overall revenues and the growth rate will come down," said Parker.

The Credit Suisse head listed the demand for asset allocation products fourth on the list of the industry’s concerns. Describing the development of the markets since the 2008 financial crisis, Parker said the key demand from clients has been for asset allocation products.

There has also been a rise in demand for illiquid assets, which is particularly the case for pension funds and sovereign wealth funds. These assets include infrastructure, real estate and private equity.

The development of emerging markets was the sixth landmark shift the industry is witnessing. One theme over the coming years will be that global managers will no longer be European or American or Japanese, said the Credit Suisse strategic advisory head. "Emerging market managers will be key players in the global asset management industry," he said.

Seventh on the list of the industry’s most pressing concerns was how asset managers perform in a very low yield environment.

"We all know the most extreme case is for those that invest in Swiss government bonds," said Parker. "If you buy two year Swiss government bonds, you currently pay 20 basis points per annum for the right to lend money to the Swiss government."

The final trend Parker identified was the swathe of regulation the industry is facing. We have to challenge whether the barrage of regulation facing the investment banking industry, the markets, and the commercial banking industry, should apply to asset managers as well, he said, addressing the audience at the ICMA’s annual general meeting in Copenhagen last week.

Hunting for yield

Michael Simcock, managing director and head of fixed income, Europe, at the Government of Singapore Investment Corporation, identified a further two trends. The first was more active management of publically-quoted assets. On the private side as well, he noted more direct management.

"That trend is coming from a need to control costs and, secondly, the expectation that more active management can add return," said Simcock.

Second was a move towards much more innovative asset allocation. This means a move along the risk curve in terms of both asset range and geographies that sovereign wealth funds are investing in.

Simcock identified several ways to achieve returns in a low yield environment. "I think there is an opportunity for [sovereign wealth funds] in areas that banks have either been investing or lending in," he said.

"I would say any opportunity, where there’s a big gap between the economic risk and the regulatory risk involved in Basel II or Basel III, is up for grabs not just for [sovereign wealth funds] but for the whole investor community," said Simcock.

See also:

Project finance’s brave new world
http://www.iflr.com/Article/3196270/Search/Results/Project-finances-brave-new-world.html

Shadow banking – are the shadows really the banks? – opinion http://www.iflr.com/Article/3110265/Search/Results/Shadow-banking-are-the-shadows-really-the-banks-opinion.html

The project debt boom: pressure points identified http://www.iflr.com/Article/3191516/Search/Results/The-project-debt-boom-pressure-points-identified.html

More coverage from last week’s ICMA:

Liikanen reveals why he had to split the banks http://www.iflr.com/Article/3210023/Regulatory/Liikanen-reveals-why-he-had-to-split-the-banks.html

ECB: how to make Europe’s banking union work http://www.iflr.com/Article/3211202/Regulatory/ECB-how-to-make-Europes-banking-union-work.html