Has there really been no change in asset management?

Another year, another conference season. Yet, it feels sad to report that nothing much – if anything at all – seems to have changed in asset management. It is now over a decade since the last financial market crisis; whilst history suggests we are due another one in the coming decade, my fear is that it won’t be a crisis that catches up with us, but signals the possible disappearance of an entire industry as we know it.

I truly hope that when the industry’s finest descend on the beautiful Nordic city of Copenhagen for arguably the industry’s flagship event, the excellent FundForum, that the discussion point takes much more of a reflective tone that years gone by. I really fear that we will get the same debates on how “change is coming”, “fintech needs to be adopted”, “asset management is about teams not individuals”, “alternative investments in private debt, direct investing, ESGs and infrastructure are the hot segments” and that we are all going to be part of the great big consolidation of the industry. We will probably also all talk about the vital need for active in an increasingly passive world.

Here’s what I see to be the real challenges for the industry henceforth, and what will hopefully be talked about within intimate circles in the wine bars, restaurants and coffee house across the city:

  • Our industry is carrying 30% too many people, and 30% too much cost. Both are related, but are separate issues which need addressing with equal measure. The tragedy of this is that “30%” cost is for remuneration for less than 3% of the employees, and these folks won’t be moving on any time soon. 30% excess in the number of people means that the AUM/employee ratio looks terrible, unfortunately highlighting the gross inefficiencies that remain in the industry. I hope that the Boards of these firms back their CEOs to take the courageous decision to re-organise their management structures, as well as their non-performing investment teams. You could follow this with staff reduction programs, too. Some employees might be absolutely delighted at the prospect of retrenchment – the apparent lethargy of the industry is doing their contentment levels no good at all.
  • Somewhat linked to the above point is the weakness in the commitment of our industry promoting more woman into leadership and management positions, and even further down the hierarchy of the organization chart. We have far more female icons in the industry now, which is amazing to see, but there’s been little progress made at grassroots level in disciplines in the core areas of investing, technology and operations.
  • The organizational “silos” within the investments industry is creating a huge drag on progress and change. Sales, Marketing and Client Service are different teams. They are all part of a single value chain of pre-sales through to post sales, so why silo them? Because that’s the way it’s always been, that’s why. Product sits on its own and IT/Ops are managed centrally from a remote city because “the parent company is based there”.
  • It’s getting a little tedious talking about regulation and compliance as the reason for everything, but firms need to accept its importance. The industry needs regulating – it’s a good thing for investors, and they matter too. The fact that our industry continues to fall short with projects, spend far too much on unnecessary technology and have poor program execution, needs to be addressed. So does the number of third party vendor relationships, some of which are historically entwined and disconcertingly cosy. It’s also disconcerting that “data” is still a problem in our industry, as is the fact that data projects can take up to 3 years.
  • The moral hazard created by the structural complexities and distribution models of the funds industry in Europe needs to be challenged and reimagined. There’s too much cost, which is creating far too much permanent employment and keeping people in fast cars and safe careers whilst investors continue to suffer.

Don’t get me wrong, I love our industry. I love active investing as much as I have celebrated the huge growth in passives. The industry is a crucial cog that allows not only our economy to function, but also allows for an increasing body of the world’s population to think about being comfortable in final quarter of their own lives. But things need to change first, and much of this change lies well within the four walls of every investment firm. Let’s hope we don’t waste another year.