Asset managers have begun focussing on what their clients need, rather than what they think investors might find attractive, according to Cerulli Associates.
The custom products market has experienced tremendous growth since the financial crisis and Cerulli projects the growth to continue as investors needs become more complex.
“The increasing speed and complexity of markets, insufficient resources, and a shift to investing for specific outcomes are driving institutional investors’ interest in custom solutions,” said Alexi Maravel, associate director at Cerulli.
With the ascent of liability-driven investment, risk-factor investing, and even a shift to passive management, the consultants said each client had developed new needs—and were demanding they be met.
However, rather than pose a challenge to asset managers, Cerulli said the growth of custom products would benefit both sides of the relationship.
“Clients will benefit from more competition, which could potentially reduce fees, and investment management solutions are more fully aligned with their unique goals,” said Maravel. “The situation is advantageous for asset managers that can focus on adding value as an active manager and bring more comprehensive services that should have greater longevity and retention.”
Cerulli said asset managers would find these new objective-oriented models less scalable than the companies they had grown in the past, but ultimately would offer better value to clients—and potentially stronger relationships.
“The majority of firms we surveyed have a dedicated custom solutions group in place, and most others are thinking about or planning to build a team,” said Maravel.
This month, a survey from Casey Quirk explained how many fund management companies had been failing to engage with and raise money from investors. A report from the consultant said errors included overestimating demand, charging fees “out of line with market expectations,” or building strategies that are too complex for distributors to explain.