Extraordinary global factors continue to alter the global financial landscape, including the effects of a once-in-a-century pandemic, European conflict-related instability and uncertainty, and inflation spurts not seen since. decades, to name a few. In this context, asset managers face greater challenges in identifying the themes that truly bring about major and lasting change within their industry.
What are the major current themes in asset management that will prove to be the most enduring and impactful in the years to come? And which of these will need resources and action the most? All managers should ask these questions at frequent intervals. While each potential response is unpredictable, examining the themes that asset managers around the world are prioritizing to maintain or gain competitive advantages can provide critical clues.
Increase efficiency and drive growth
“We primarily see asset managers focusing on three key themes: cost savings and efficiency, data capabilities, and new products and delivery channels,” says Jon Mann, Global Segment Head Banks, Brokers and insurance within BNY Mellon Asset Servicing. . He notes that a growing number of asset management companies are prioritizing initiatives that will reduce costs and streamline processes, generate new products and revenue opportunities, and grow their customer base. To achieve these goals, he adds, they are leveraging cutting-edge technologies, increasing outsourcing and making strategic consolidations and acquisitions.
Theme 1: Leverage technology to reduce costs and add capabilities
As fee pressure continues and the competitive landscape intensifies, asset managers are eagerly looking to drive growth by cutting costs and expanding capabilities, Mann says. Fortunately, technology offers unprecedented advantages in achieving both of these goals. Recent advances in data science computing power, information discovery, and modeling through artificial intelligence are enabling businesses to find new, cost-effective ways to increase efficiency and add value. value. As other companies take notice and incorporate similar innovations, business models and customer expectations are raising the competitive bar in the asset management industry.
“Asset managers that are on the higher volume/lower price side – such as those offering ETFs and all products that require scale – will seek to create efficiencies and scale” , predicts Mann. “On the other hand, alternative-focused companies seek to gain the ability to establish differentiation in their offerings, in areas involving risk management, quants, or other interesting permutations in how they do BNY Mellon has also seen a fairly large wave of M&A activity and a boom in fintech outsourcing, and we expect these trends to continue.”
Theme 2: Outsourcing technology must build data capabilities
While the effective collection and use of data has long been a critical competitive area for asset managers, the widespread acceleration of pandemic-spurred digital transformation has rapidly raised standards across the industry, leaving many businesses struggle with outdated systems that can no longer meet day-to-day needs.
To avoid this fate, asset managers who had long delayed comprehensive technology upgrades are now moving forward with these initiatives to gain cutting-edge data capabilities and stay competitive. But instead of relying on in-house teams and resources, Mann says, companies are increasingly turning to service providers with specialized expertise to help with these technology transformations. »
“Asset managers recognize that data is the common thread between the front, middle and back office, and they must leverage digital technology to support an agile, data-centric growth model,” notes Mann. . In a recent study conducted by BNY Mellon, titled Asset management: the transformation is already herea survey of more than 200 asset managers globally found that 96% of them currently use cloud computing technologies in their front-to-back offices, and 67% plan to increase their reliance on against major financial service providers by 2024.
“This tells us that cloud transformation is already well underway in the industry and that more than half of asset managers will rely on outsourced providers for capacity expansion to meet growing needs,” says Mann. When it comes to specific areas where asset managers intend to leverage this external expertise, almost all survey respondents (97%) say they would apply it to asset management infrastructure. data management, followed by back-office needs (90%), data exploitation (78%). , middle-office processes (61%) and front-office activities (41%).
Theme 3: Attract retail investors with new products and direct-to-consumer distribution
Several factors drive asset managers to introduce new products and client services. First, technological advances in data science are opening up new possibilities in stock selection, portfolio management, risk modeling and other fundamental tasks. Additionally, asset managers are responding to the ongoing “retail revolution” by creating new products for private investors, which is also driving product development for traditional institutional clients.
“The technology creates opportunities, in terms of using it to create new products and enabling access to new and more complex products, providing much more transparency to the end investor,” Mann says. These products include alternative investment funds that can be sold to retail investors – such as the European Long-Term Investment Fund (ELTIF), for a striking example.
“With more retail investors, investments are increasing – but with lower amounts and higher demand for transparency and information,” Mann continues, noting that BNY Mellon Asset Servicing is dedicated to helping asset managers navigate this new terrain to achieve their most pressing goals. “We are part of this ecosystem and connect buyers and sellers, providing a digital platform that connects all processes and activities, back and forth, allowing us to coordinate and facilitate all the needs of clients.”
As investors increasingly expect asset managers to offer an ever-expanding menu of services, as well as continuous innovation, asset managers know they must meet these expectations to to survive. In the BNY Mellon survey, 43% of respondents say that restructuring and streamlining their product offerings is among their top strategic priorities.
Additionally, distribution standards are changing as constant improvements in digital and mobile technology make it easier for customers to access new and existing products. “Direct online distribution using smartphones is the way to go, because that’s what the next generation is waiting for,” Mann says. “New technologies are changing the way asset managers distribute and expand their market share by offering innovative, customizable and scalable solutions. To better capture the growing base of retail investors, they need to rethink their distribution model to include direct access to consumers. »
In the BNY Mellon survey, 80% of asset managers say they expect growth in direct-to-consumer distribution by 2024 (100% noting that they currently distribute their products through fund platforms). Unsurprisingly, 64% say they expect service providers to offer distribution support, allowing them to use outsourced expertise to acquire these essential capabilities as well.
Asset managers who most effectively embrace these three macro themes with holistic and synergistic strategies are expected to gain considerable market share in the coming years, and new leaders may emerge. However, companies that fail to take advantage of the timely opportunities that these trends present, or that fail to manage their risks, may fall irrevocably behind their peers who have better understood the impacts of the rapid changes taking place on the market. ‘industry.
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