The “southern” European belt in a mess, the threat of inflation looming and dizzyingly high commodity prices is the perfect recipe for asset management CEO’s to wheel themselves out at the industry events such as Fund Forum (in Monaco may I add) and extol the virtues of how their immense talent pool and breadth of investment platform will steer their clients through stormy waters.
It’s remarkable to me that year in, year out executives of these firms sense the mood of the markets and say one of two things; “our performance is stellar so stick with us” or “the world is imploding but stick with us, we’ll navigate you through it”. It’s pretty unoriginal material.
The FT this week noted that there was over $1300 million of wasted fees making their way into the coffers of these so called “outperforming” managers. What worries me is not so much that these executives have limited vocabulary – I do get it, the industry is relatively simple – we give them our money and they put it to work. My concern is that they are not focusing on real industry issues.
I listened to a speech in San Francisco recently made by Jon Callaghan, a General Partner at venture capital firm True Ventures. He reminded me that two of the biggest companies in the world today are Exxon and Apple before noting how stark the difference between the two companies is. Really stark.
Whilst one is the embodiment of the “old” world, the other has emerged as the true definition of the “new”. Our future. Yours and mine. My fear is that executives of asset management firms are still living in the “old” world. It’s time they moved into the “new” era. After all, the new is just as important to our future as the money that these managers are looking after for us.
More often than not when I visit an asset manager, I am left stunned at how many desks I need to walk past before reaching a real Fund Manager or the Sales and Marketing department. Before them, in my opinion, come too many desks occupied by IT people, operational teams, change managers and many other “jobs” that were created during the significant expansion that many of these firms experienced throughout the nineties and first half of this century.
For most sectors, this way of working has become the “old world” too. In nearly every other industry, vertical new technologies, agile ways of working and smart approaches to outsourcing have radicalised cost bases, reduced horrendous waste and transformed the “old” into the “new”.
It’s time the asset management industry caught up. The cleverest CEO’s will choose to streamline operational support, diverting the investment into reducing expense ratios at the fund level instead. This will be the real driver to differentiate firms and allow them to enjoy the next growth cycle.
The other observation I have is that many firms are making light of the dramatic shift in the buying behaviour of the globalised marketplace. This shift, in context, also applies to the asset management industry. This is not simply making sure firms have a Social Media strategy which is a subject we have talked about in previous blogs and that many asset managers are already making plans to execute on – it is more than that.
With the Retail Distribution Review accelerating towards us, I think that the entire distribution chain in the industry could suffer a shock. IFA’s and traditional distributors will busily change their models but have asset managers considered what impact this will have on the buying practices in the retail market.
The next generation of investors want more than transparency. They want a connection with where their wealth is going – right past the middle men. They want to “buy” things on their Smart devices. They want to pay directly to the institution proving them value. They don’t want to fill in forms. The web is their home.
I don’t often hear these things being discussed. It’s time.