EUROPE – Consolidation of the fund management industry will occur, but mid-sized firms do still have a chance of surviving, says Richard Wohanka, chief executive at Fortis Investments.
The long-forecast polarisation of the asset management - whereby small and large firms will survive and the medium-sized players will be squeezed out - will not really come about, he said. Mid-sized asset managers stand a chance of survival - if they make the appropriate changes, Wohanka told the PensMart forum in Frankfurt yesterday.
He argues that decent fund managers have coped with the recession well. They have successfully cut costs, improved risk control and re-adjusted their product mix. If they want to succeed further, however, and ensure their position for the future, they must make certain changes.
Firstly, and an issue raised throughout the forum, they must become more customer-driven. The industry bias in the past, agreed the delegates, has been largely product-driven and must change.
Clients, having experienced poor returns on their investments, are now demanding performance of total returns. Meeting the clients’ demands could be answered by adapting products to their needs. While large institutional investors have a good knowledge of the market and risks, and can therefore benefit from specialist products, this investor-base does not make up the majority of the market.
Wohanka says that for the small- to medium-sized investor, balanced products are still best, but not in the traditional way. Innovation is crucial, and he advocates ‘new balanced products’.
The structure of mid-sized asset management companies must also change. Management needs to be separated from the fund management. “Successful firms will separate the managing of money from the management of the business,” he said.
An organisation split into several groups of fund managers is also a key issue in going forwards, says Wohanka. In order to so, they may have to face criticism from consultants by instead having several groups of fund managers – potentially with conflicting outlooks – but they should be prepared to do this.
Finally, asset management companies must invest in their people. Fund managers should be sufficiently remunerated – the arguments being that if money is not an issue, then they can concentrate on the task in hand, and that holding on to good fund managers is crucial. For mid-sized companies this may be more difficult as they will come up against their parent banks or insurance companies. A further means for investing in the people is through education. Fortis IM plans to spend fifteen times as much on training in 2004 than in 2003.
“Mid-sized firms will survive if they understand the customer, but they need talented people and innovative products,” warns Wohanka.