Asset management on precipice of change

Norms in asset management are set to alter significantly this decade in response to ongoing trends, says a new research report from strategic consulting firm Indefi.

From the increasing focus on retail investors to the rise of non-financial alpha, various trends will motivate managers to re-think their processes over the next decade — and even what asset management means.

“If a portfolio manager teleported from 2020 into 2030, they would most likely not recognize their industry,” said Daniel Celeghin, an Indefi managing partner and co-author of the paper, in a release.

According to the report, by 2030, retail investors will account for more than 61% of global assets under management, up from 52% in 2021, as institutional assets slowly lose ground. And 67% of industry revenues will come from retail investors, versus 61% in 2021.

Policy, including a move away from defined-benefit pensions, and demographics are behind the shift. “We expect [the trend] to pick up steam as the major emerging markets, notably China, are overwhelmingly dominated by retail investors,” the report says.

With this new focus on individual investors, asset managers must reassess the competition, which is no longer the firm next door but rather “any potential destination for individuals’ excess savings: bank deposit products, insurance, robo-type platforms, direct-lending platforms, and digital assets are all vying for the same dollar,” the report says.

The rise of retail investors is also helping fuel another trend — deglobalization — as retail investments are typically more regulated than their institutional counterparts, the report said. The result will be greater traction for domestic investments, with cross-border strategies accounting for about one-fifth of new investment flows.

Another management trend is that maximizing returns will no longer be managers’ sole investment objective.

“Investors (and policy-makers) have embraced non-financial ‘alpha,’ clearly seen in the explosive growth of ESG and sustainability,” the report says.

In fact, in markets such as Australia and Europe, “failing to include sustainability in investment decisions is now a form of negligence,” it says.

It also suggests managers capitalize on the rise of new investments and asset classes, including alternatives and crypto, to expand their investment toolkits. For example, alternatives could employ investment strategies designed to own both private and public assets, “which would lead to a revolution in the multi-asset space, and fuel innovation for decumulation products.”

Finally, Indefi forecast that artificial intelligence won’t replace asset managers — at least not by 2030 — but will help them do their jobs more efficiently.

“Investment managers should take a close look at how legacy business processes in the front office (investment, distribution, business leadership) could benefit from advances in data science and predictive analytics,” the report says.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.