10 Medium-Term Trends in Asset Management

The coming years will be exciting for the industry. Environmental, social and corporate governance, climate and illiquid investments remain high on the agenda. However, the biggest “known unknown” remains the macroeconomic environment and its impact on financial markets.

Medium-term challenges and opportunities in asset management.

The asset management industry is looking back at another year shaped by the coronavirus pandemic. What other developments can be expected in the industry? The pace of change is massive: coding, digital sales channels, and climate analytics are just a few of the topics. Here are 10 trends in asset management for the coming years.

1. The overall tailwind fades away, taking the wind out of the directors’ sails

The attractive macroeconomic environment is fading. Asset managers, who have delivered a poor alpha in recent years and benefited greatly from beta markets, will be particularly affected. We anticipate a revival in asset classes that have not received much attention or have declined relatively in recent years.

2. Traditional managers find a way…any way road in illiquid investments

Traditional asset managers who find current valuations too high or who are interested in integration will expand organically into the semi-liquid realm of traditional asset classes.

However, others will bite the bullet and do whatever is necessary to secure the market’s own capabilities. The pressure to find profitable growth opportunities is such that the risk of not having these skills outweighs the risks of excessive or slow mergers.

3. Coding is the drive to democratize the private market

Tokenization will usher in the next wave of investor access by cutting costs, improving secondary market liquidity and enabling partial access. This opens new opportunities for asset managers to develop compelling products and master the support systems, processes, and controls needed to take advantage of distributed ledger technology.

4. The race for long-term capital will intensify

We anticipate a wave of new long-term or permanent mutual funds that will make it easier to invest in illiquid assets, especially for VAG investors. At the same time, asset managers and banks will compete for this customer segment. In addition, the ELTIF system will open up new opportunities for retail investors and increase the importance of illiquid investments.

5. The regulatory environment has become more stringent, especially with regard to green washing

Regulations will become stricter and we anticipate the introduction of a ‘feed label’ for ESG products, making asset managers accountable for delivering ESG investment offerings and value for money.

6. From ESG Products to ESG Experiences

Customers understand that their needs are not being fully met by existing ESG products. Leading wealth managers adopt a “customer first” approach, designing holistic experiences that meet client needs such as trust or a sense of community.

7. Virtual becomes reality

An entire virtual wealth manager can operate on a cost base of approximately 40 percent lower. The experiences of the past two years have shown that such models are closer to reality than to fiction. While most companies opt for the blended business model, others will abandon the face-to-face office, go digital on a large scale, and where this is not necessary, will have to outsource their business elements.

8. Super Money Managers Responsible for Sales

Selling through financial intermediaries hasn’t changed much in decades — until now: Asset managers won’t wait for sales partners, they’ll take the first step themselves. Digital tools will transform customer interaction from just selling products to selling stories – stories that customers can connect emotionally and intellectually with.

9. Intensify China’s efforts on the ground

China remains the fastest growing region in the world. With global players fully operational, the focus will shift from licensing to competing for local businesses. Advanced asset managers in China will start developing differentiated local strategies (eg. ESG) and adapting to local sales dynamics (eg using WeChat).

10. Mergers and acquisitions will reshape the industry

The list of the 20 largest global asset managers will change. Major players in the industry will become more active in pursuing mergers and acquisitions as the needs and benefits of expansion become too great to be ignored. At the same time, private equity firms will selectively acquire mature companies (medium-sized and large) to drive necessary changes that current management teams have resisted.

This article is part of the “#Banking2025” series on medium-term prospects, changes, opportunities, and risks for banks and savings banks.

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