Can Asset Management Disrupt Itself?

Providers are already finding answers to long-term challenges, argues Fitch Ratings.

For all the talk of new entrants to asset management, real disruption in the sector is set to come from within, according to Fitch Ratings.

Severalreports this year have highlighted the need for asset managers to adapt to survive—but Fitch Ratings Analysts Manuel Arrive and Alastair Sewell argued many firms had already made significant changes to their business models.

Groups have variously begun to adopt data and new technologies as “strategic assets,” the authors said, in response to competitive and regulatory pressures as well as a potential “inflection point” for industry asset growth in 2016. Such tools “have the potential to provide new sources of alpha and asset raising,” they added.

“Asset managers that shifted early their business positioning in anticipation of the next investment cycle or emergence of long-term, sustainable growth areas have developed a key competitive advantage,” Arrive and Sewell wrote.

The report also highlighted the importance of “client-centric” and “outcome-oriented” approaches. Segregated mandates “should continue to be recipients of sustained inflows,” the authors said.

“Long-term institutional investors are moving down the liquidity spectrum, increasing allocations to real assets,” they added. “Private-market exposures [will] gain in popularity, as the benefits of incremental yield and diversification outweigh the obstacles of low accessibility, illiquidity, and regulatory restrictions.”

In addition, the authors reported that active managers have begun to “fight back” against performance and competition pressures. Despite room for passive strategies and products to further grow their market share, the Fitch analysts claimed a recent improvement in performance from active managers could help make the case for this under-fire section of the industry.

“Lower systematic returns, higher idiosyncratic risk, and global desynchronization may support active management performance, which has improved over the past 12 months,” Arrive and Sewell wrote. “Asset managers have been encouraged to demonstrate their active management skills, as European regulators and groups of investors increase scrutiny on value for money.”

Strategic initiatives in 2016

Related: Asset Managers ‘Struggle to Meet Client Service Needs’ & PwC: Returns Not Enough for Success in Asset Management

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