The new battleground for multiasset solutions

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Product innovation has become a key competitive battleground for the asset management industry. New research from State Street reveals that more than half of asset managers (56 percent) believe that developing new products will be their greatest growth opportunity over the next three years. These are among the findings in our new report, based on a global survey of 300 senior executives at asset management firms. [1]

Our research indicates that asset managers could be on the threshold of a new era of expansion, with 79 percent rating their prospects for growth over the next 12 months highly. The greatest growth opportunities will arise from asset managers’ ability to tap into new trends in investor demand. For many in the industry, the priority will be to develop multi-asset solutions. More than two-thirds of survey respondents (67 percent) view these investment strategies as the main source of growth over the next three years.

But why the sudden demand for multi-asset solutions? And what are the implications for asset managers as they prepare to contest this new battleground?

Keeping the target in sight

A key characteristic of multi-asset solutions is that they are designed around the investor’s particular objectives. Asset managers are constructing portfolios that combine an increasingly diverse set of asset classes to meet these specified investment outcomes. For example, a typical multi-asset portfolio might include a range of alternative asset classes such as commodities, credit, hedge funds, private equity and infrastructure, alongside more traditional asset classes.

The multi-asset approach brings several advantages. For example, the right mix of asset classes can help investors decorrelate risks and reduce exposure to volatility. Asset managers are also better able to match investment portfolios to an investor’s risk appetite and their long-term investment needs, with the allocation and asset mix changing as required. These solutions are usually designed to deliver absolute returns against the client’s specific investment objectives.

Strengthening the troops

For all their advantages, multi-asset solutions create considerable challenges for the industry. In particular, asset managers must make the transition from selling traditional product to designing customized solutions for their clients.

Today, many asset managers feel ill-equipped to face this challenge. Just under three-quarters (74 percent) of companies in the survey agree that few asset managers are equipped to thrive in this multi-asset world.

This is partly because the new strategies require new types of expertise. Indeed, the shift to multi-asset strategies could usher in a new phase in the war for talent, as asset managers seek out broader skills in portfolio construction and management. In our survey, 53 percent of asset managers plan to invest in talent to address capability gaps over the next three years.

Asset managers also need to invest in more sophisticated tools to manage performance and risk across today’s more complex investment portfolios – something they often struggle to do using existing technology. According to our survey, more than 9 out of 10 asset managers (93 percent) plan to invest in risk analytics, performance analytics and data integration over the next three years.

Leading the charge

The growth in demand for multi-asset strategies represents an inflection point for the asset management industry. Over the coming years we can expect to see competition intensifying, as industry leaders battle to carve out a dominant position in the multi-asset market.

No one should underestimate the scale of change required to succeed in this new environment. The shift from providing traditional investment products to delivering outcome-based solutions will require new skills, new technologies and new ways of thinking.

Those asset managers who can arm themselves with the tools and talent required, and combine that with the right plan of attack, will have a huge advantage. They will be the ones leading the charge in the new battleground for multi-asset solutions.

 

[1] Frontline Revolution: The New Battleground for Asset Managers, July 2014, featuring the findings of the 2014 State Street Asset Manager survey conducted by FT Remark in April and May 2014.

Joerg Ambrosius (pictured) is head of asset manager solutions for Europe, Middle East and Africa at State Street

 

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