Sovereign wealth funds will play a key role in the "disappearance of hundreds of billions of dollars" from the private sector asset management industry over the coming decade, as some of the world's largest investors become investment managers by buying into the sector, says KPMG.
Sovereign wealth funds will play a key role in the “disappearance of hundreds of billions of dollars” from the private sector asset management industry over the coming decade, as some of the world’s largest investors become investment managers by buying into the sector, says KPMG.
The business consultancy’s Nicholas Griffin says: “”I fully expect in the next year a SWF will buy a global asset manager, and hundreds of billions [of dollars of AuM] will disappear from the market over the next 10 years, because SWFs will become asset managers, and this is something asset managers will have to respond to.”
Rather than fight back, however, some asset managers facing continuing squeezes on margins even at the end of extensive cost cutting exercises seem resigned to their industry shrinking. A 20% contraction in players and staff numbers was a figure commonly heard by the KPMG partner, who spoke at the Fund Forum event in Monaco yesterday.
Griffin said asset managers faced numerous challenges. Another, mentioned by other speakers aside from Griffin, was working out how best to serve an ageing, retired population more interested in preserving capital or running down savings than growing them.
“The asset management industry has been built around accumulating, but the demography is changing right across the world, which means [clients] have to start thinking about how to play down assets as we get older and we are having to work out how to ‘decumulate’ assets.”
In a similar vein, Griffin said there were opportunities in asset managers working on outcome-oriented products to solve clients’ challenges, for example paying for healthcare costs after retirement.
He pointed to opposing forces among asset managers’ clientele. On the one side, retail intermediaries wanted simpler products after various product mis-selling scandals, while on the other side institutional fund buyers wanted “more product sets to deal with volatility and inflation, for example”.
In refocusing on helping clients meet goals, Griffin said they should also realise ‘solutions-based’ products were inherently difficult to grow “because the business is complex”.
Outcome-oriented products would also demand managers reconsider how their corporate teams worked together, or did not.
“In good times of 2007 asset management teams did not have to work together that much and teams could compete against one another,” he said, citing an example of four different teams from on manager visiting a potential client, with one sales team, all pitching for the same business.
“The product specialists sit with asset managers, sales teams and back office by themselves. If you look at things in tougher times, it is much tighter. Portfolio product specialists and sales relationship managers and operations work much more closely together.”
More outcome-oriented products demanded a greater understanding of what outcome the client wanted, and how the product manufactured would meet this. Hence, sales teams now required greater technical understanding, Griffin said.
He added disintermediation of consultants would continue, but that this was in part spurred by consultants becoming asset managers themselves.