The Official Blog of Acuity Knowledge Partners

Change: The new constant for asset managers

Published on April 3, 2013 by Guest Blogger

Changing the way an organization works is one of the most challenging assignments for any manager. The plethora of books on this topic emphasizes the need for a catalyst to stimulate change. The secular decline of profitability of the sell-side brokerage industry over the past 15 years has been the most powerful driver of change in that industry. Firms that have been slow to drive down their costs have either gone under or been taken over.

Asset management companies face a more complex challenge. The industry has been consolidating. Economies of scale in technology platforms, branding, and marketing have favored the growth of global giant asset managers. At the same time, niche firms that focus on specific superior skill sets and knowledge have continued to prosper. With the possible exception of early 2009, many firms have not faced the kind of sustained financial pressures familiar to the long-suffering sell side. The industry has retained sufficient structural profitability for cost pressures alone to not be able to bring about comprehensive change.

Nevertheless, pressure is building on the asset management industry. Dismal equity returns over the past decade have resulted in lower levels of equity investment by both individuals and institutions. Growth of assets under management has become much more difficult for equity managers to achieve. Returns on fixed income investments have shrunk to the point that investors have started to question the fees paid for active management in this area.

In the past, many active asset managers had cultures of decentralized control, driven in part by the influence of star portfolio managers as well as by the legacy of mergers and acquisitions over the past decade. This inhibited the ability of central management to drive change across the organization. However, in our meetings with senior asset managers over the past 18 months, we have heard of more organization-wide cost reduction targets being established. This may be the catalyst for a more radical re-evaluation and re-engineering of the way client communication, marketing, distribution, compliance, and regulatory reporting is being managed.

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