Disruption was the word on everyone’s lips in 2016. In a year when fee compression reached its peak, investor scrutiny was at an all time high and regulation tightened on a global basis, asset managers felt the squeeze…but where does this leave the industry as we move in to 2017?
Increased flows to small and mid-sized managers and independent providers
The pressure on firms to enhance returns means we are likely to see investors starting to allocate more funds to smaller more flexible managers. These managers can offer the benefit of a high quality investment product whilst also having the advantage of flexibility in a performance environment that is increasingly dependent on security selection.
It is also true that in the service provider arena we are likely to see managers increasingly choosing independent providers over institutional brands for the same reason. A nimble service provision is essential in the current market. Managers will be looking for tailored solutions and robust automated products that suit their particular set up. As more esoteric emerging managers receive investments they will be looking for support from service providers able to respond quickly and adapt their service delivery as required.
Politics is likely continue to infiltrate the asset management industry in 2017 as it did in 2016 following the unprecedented outcomes of the EU referendum and US Presidential Election; the full implications of which we are not yet certain of.
The impact President-elect Donald Trump is set to make on the US economy is inevitable as he plans major changes to tax structures, infrastructure spending, international trade deals and healthcare. The subsequent impact of these changes on the markets, economy and inevitably the investment management sector means volatility will almost certainly increase. Recent polls have suggested that US based managers believe Trump will bring positive news to the local hedge fund industry, yet opinion overseas as to how it will affect non-US based managers is not so positive.
It comes as a surprise to no one that regulation will continue to shape the future of the asset management industry into the next year. Ever increasing compliance costs alongside a constant squeeze on fees means managers will need to further scrutinise their operations. The push towards outsourcing will likely continue in momentum especially as the Private Equity sector begins to take far greater interest in outsourcing more of their operational functions as automation and efficient processes become increasingly important. As such service providers will need to ready themselves for a continued increase in demand from new asset classes as forward thinking PE and VC managers increase their demands.
In 2017 all players in the asset management industry will really need to examine their operational processes and the technologies they utilise in order to ensure they remain relevant, deliver the most efficient solutions and are continuing to drive costs down.
As the charge of Robo-Advisors continues to put pressure on fees into the New Year, more traditional asset managers will need to develop new strategies in order to remain competitive whilst also maintaining focus on their existing clients. The merging of asset classes that began to materialise last year will most likely continue and both managers and service providers alike will have to stay technologically ahead to remain competitive.
Not surprisingly technology is shaping the course of the investment management industry into 2017 and operational transparency, automated processes and a trend toward openly sharing data with clients’ means that it is likely those who embrace the instant automation technology advances who will find success. A customisable approach is no longer simply desired, it is now a requirement. Technology platforms and automated reporting can support firms with the fee pressures that came to fruition throughout 2016 whilst also helping to deliver an augmented traditional service offering and a competitive edge.
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