Fund managers are facing the most challenging environment for many years with both uncertain markets and uncertain client demands. Still, most are optimistic, according to the annual fund managers survey by State Street, to be published this week. The survey revealed four key ‘value drivers’ for managers.
The trend to inhouse management by big pension funds in the Asia Pacific region, for instance, represents an important challenge for managers to find new solutions for their institutional clients. Most (71 per cent) said the insourcing trend was “shaking up their business models”. Most (82 per cent) also felt they were likely to face new competition from an industry disruptor in the next five years.
The annual survey, conducted by FT Remark on behalf of State Street, covered 400 asset managers around the world, including 125 in the Asian Pacific region (45 of whom are based in Australia).
Product innovation was seen as very important in this insourcing environment, with managers believing they have to offer better services, solutions and value to their institutional clients.
Paul Khoury, the recently appointed head of State Street Global Services in Australia and NZ – the bank’s custody arm – said: “Growing client demand for bespoke solutions requires many asset managers to adjust their business models, particularly as clients move in-house and insist on more personalized service to help them manage their money.” Khoury is also State Street’s head of ‘sector solutions’ for asset managers in APAC.
With the US Federal Reserve likely to tighten monetary policy this year, the report showed that asset managers in APAC plan to adjust their allocations in the first year of a rising interest rate environment. Nearly two-thirds (62 per cent) of regional respondents plan to expand their offering of fixed income alternative strategies to meet heightened investor demand while 57 per cent will increase use of derivatives to hedge against interest rate risk.
Managing risk is a major concern for institutions around the world, with 72 per cent of asset managers in the global survey saying their conversations with clients have evolved to focus more heavily on understanding risk and implementing strategies to manage it.
“The most enterprising asset managers are responding by bringing more to the table in their client relationships. Delivering greater value doesn’t just mean achieving consistently high returns, it means forging closer partnerships with investors based on a transparent dialogue around risk and performance,” Khoury said.
Overall, asset managers are positive about the opportunities for growth despite growing competition and potential disruption from new entrants to the industry such as technology or non-financial services firms.
Eighty-four per cent of APAC-based respondents forecast increased opportunities for profitable growth over the next year, while 82 per cent agreed they were likely to face direct competition from an industry disruptor in the next five years.
“Non-traditional market entrants could mount a serious challenge to asset managers in the region and globally,” Khoury said.
The four ‘value drivers’ identified by the researchers were:
> asset managers reshape the product mix around the new client needs
> client services become more transparent and more personal
> risk goes to the heart of the conversation
> advanced operations can deliver value at scale.