What is the new gold rush route for asset managers?

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Deloitte’s 2019 Asset Management Survey highlights revenue pressures experienced due to the rise of ETF and passive funds, and the importance for asset managers to differentiate their offerings in a world where performance is not the only criteria for investors.

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20/01/2020 |
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    Vincent Gouverneur, Partner Deloitte Luxembourg and EMEA Investment Management Co-Leader and Simon Ramos, Partner Deloitte Luxembourg and Investment Management Advisory and Consulting Leader

Deloitte’s 2019 Asset Management Survey drew on insights from 23 players managing €8 trillion assets under management to gain a holistic view of today’s market needs in order to anticipate future trends.  

In recent years, both the asset servicing and asset management industries have experienced continuous challenges driven by fee compression, new product demand, stricter regulations, and an ever-evolving economic climate. The survey—launched to fully understand the complete investment management value chain—revealed two major issues impacting the industry today.

Firstly, the rise of exchange traded funds (ETF) funds have pushed asset managers to find new revenue sources by turning to alternative products and attracting new types of investors. Secondly, investors’ increasing expectations in a personalised experience has led to the need for specific data collection.

“The positive or negative outcome of these challenges will depend on the willingness and timeliness of market players to embrace technology,” comments Vincent Gouverneur, Partner Deloitte Luxembourg and EMEA Investment Management Co-Leader. “This evolving landscape calls for actors to adapt and even reinvent their operating models to better cope with what lies ahead.”

An alternative future

According to the survey, fee pressure (100 percent of those surveyed) and regulation constraints (65 percent) are the biggest distribution challenges currently faced by asset managers. Indeed, the rise of exchange traded funds (ETFs) – 100 percent of asset managers surveyed are looking to significantly increase their active or passive ETF offerings within the next three years – is putting a lot of pressure on actors’ operating margins. To relieve from such pressures, asset managers are turning towards alternative investments and particularly Private equity, real estate, and private debt products which are on the rise in Europe and APAC. Two thirds of survey participants intend to increase their private equity offering in the next three years. Alternative products enable asset managers to increase their operating margins as investors generally accept to pay a performance fee on top of a generally higher management fee—good news in an environment that sees a general reduction in margins with a need for growth in new pastures.

Investments with meaning

Investor’s leaning towards sustainable and responsible investment funds was also a strong theme within the survey with environmental, social, and governance (ESG) fund offerings likely to soar in Europe over the next three years. The continent currently represents 46 percent of the sustainable investment market and, with 6 percent annual growth since 2014, ~90 percent of asset managers surveyed already offer ESG products in their existing portfolios or are set to increase or launch such products in the coming months. Exclusion, ESG integration, and engagement & voting are the main strategies used within socially responsible investment products.

Is data the new gold?

Investors are increasingly expecting tailor-made portfolios, adding further pressure to asset managers’ needs to collect data on their existing and potential investors. According to the survey, 69 percent of asset managers consider investor information and asset data the most important data for their business.

Currently investor data is in the hands of asset servicers—specifically transfer agents—who act as a layer of intermediation between asset managers and investors. Today, transfer agents are in the middle of an unprecedented market disruption with technology leading to a major reshape of the transfer agent’s distribution model. Indeed, 85 percent of asset managers surveyed believe that blockchain will disrupt their value chain in the next decade.

Furthermore, more than half of survey participants are mitigated about their asset servicers’ (transfer agent, custodian, fund administrator, depositary bank) digital capabilities. As a result, most asset managers surveyed are considering re-positioning their client-facing activities, among which investor reporting or register maintenance, which will encompass the need for embedding the appropriate business and technology knowledge.

“This trend represents a major threat for asset servicers who need to rethink how they operate to take advantage of the technology potential in order to respond to their client needs. The key resides in the ability of technology and business experts to adapt to the changing environment,” comments Simon Ramos, Partner Deloitte Luxembourg and Investment Management Advisory and Consulting Leader.

Asset managers are also turning towards direct distribution to collect investor data, as more than one third seek to increase their proportion of direct distribution in the next three years.

About the Deloitte 2019 Asset Management Survey

Organised jointly by Deloitte Luxembourg, Deloitte Ireland, Deloitte France, and Deloitte UK, the Asset Management Survey is a recurring format, alternating biennially between asset services and asset managers, in order to describe the market landscape of the investment management industry.

The 2019 edition, focusing on asset managers, welcomed 23 players located in Europe and the USA who oversee a total of €8 trillion assets under management (AuM). This sample of participants provided a good representation of all asset management size, with large players managing more than €500 billion and small, niche boutiques managing less than €100 billion. By collecting and analysing data, the Survey identified key market trends and challenges that will shape the future of the industry.

To read the Deloitte 2019 Asset Management Survey in full, please go to: https://www2.deloitte.com/lu/asset-management-survey

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