As a result, many asset managers may struggle with declining revenue and a shrinking book of legacy business, according to a white paper from Casey Quirk & Associates LLC, “The Complete Firm 2013: Competing for the 21st Century Investor.”
“Over the past three decades, favorable demographics and market appreciation generated strong revenue and handsome profit margins for asset managers worldwide,’’ said Kevin Quirk, partner at Casey Quirk. “In the next five years, we expect the growth to slow, investment firms to be tested and market leadership to change dramatically.’’
The white paper outlines a challenging landscape for money managers worldwide but also predicts most of the industry’s future revenue growth will belong to a select group of firms that can innovate by globalizing their portfolios; incorporating alternatives into their investment strategies; orienting their business toward individuals and their growing demand for solutions; and pursuing opportunities in faster-growing emerging markets.
Individuals, not institutions, will drive future growth for asset management firms, according to Casey Quirk, which forecasts that four-fifths of an anticipated U.S. $40 billion of net new revenue over the next five years will come from the increasing wealth of individuals worldwide.
The winning firms over the next five years, according to Casey Quirk, will be those that adapt to the industry’s changing dynamics and prove to be skilled at offering one or more of the following:
- Uncorrelated and superior active equity, fixed income and/or alternatives;
- Cost-efficient indexing and exchange-traded funds (ETFs);
- Asset allocation expertise, such as multi-asset class solutions, liability-driven investing (LDI), target-date retirement funds and outsourced investment services; and
- Selling open-architecture best-in-class solutions.
Companies that can develop and enhance those capabilities will win 90% of net new revenue available over the next five years, according to Casey Quirk. Most industry firms worldwide will compete for the remaining 10% of net new revenue, while defending their legacy clients.
The attributes of the successful firms of the future include investment brand strength; larger sales teams; economic incentives to recruit and retain talent; a global platform; and operating autonomy, Quirk said. “Those unable to develop such traits will struggle, and that includes some of today’s market leaders,’’ he added.
Information about how to obtain the full report is available at www.caseyquirk.com.