Following a rough year for markets in 2018, asset managers have their work cut out for them if they want to attract and retain clients and re-establish positive momentum, with technology at the core of success, according to a new Boston Consulting Group report.
“Even after a year as challenging as 2018, asset management is fundamentally on solid footing,” said Renaud Fages, partner and global leader of the firm’s asset management division and co-author of the report, in a press release. “It’s hard to feel gloomy about an industry that generated almost $100 billion in operating profits in a down year. But the glass is only half full — and to keep the profits coming, asset managers must adjust to major changes. The next decade will be about meeting evolving customer expectations, enhancing performance and operational efficiency through data and analytics and adjusting to the emergence of China.”
Many asset managers’ short-term priority will be restoring positive momentum, the report said, highlighting that in 2018, assets under management dropped by four per cent globally to $74.3 trillion.
Over the next few years, active management will continue its uphill battle against passive solutions and alternatives, with fee erosion persisting, noted the report. Other projected trends include getting technology investments and strategy right, the growth of China and sustainable investing.
The report said asset managers have two potential paths to take to succeed over the next decade. The first is to operate as a small boutique alpha shop focusing on investment performance, while the second is to operate a distribution powerhouse, amassing large scale.
However, disruption from digital giants could be a wild card to these developments, according to the report. It also noted data and analytics will be game changers going forward as they can deliver lower costs and better execution in trading and improve marketing and distribution functions .
Yet, it appears only a few firms are genuinely committed to seizing the opportunities offered by data and analytics. The report cited a survey of global asset managers, which found only 20 to 30 per cent of asset managers are pioneers in technology investment.
Technology is changing the sector so significantly that firms not making the required investments may not survive, the report noted.
“Ultimately, most industry leaders recognize that data and analytics can serve as tools to sharpen their decision-making and upgrade their operational efficiency,” said Lubasha Heredia, BCG partner and co-author of the report. “But many of them lack the IT resources, data architecture, talent and cultural readiness to implement changes at the required scale. The result is a riding sense of urgency and little idea of how and where to invest. But the time to act, and act quickly, is now.”