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IPE special report May 2018

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Multi-asset a 'clear growth opportunity', State Street survey shows

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  • Manhattan, New York

Asset managers are bullish on the growth of their businesses and expect that growth to be driven by competition over more home-market demand for outcomes-based investment solutions such as multi-asset products, according to a global survey unveiled by State Street in London.

Just over half of the 300 managers surveyed believe growth for their business will be strongly positive over the next 12 months.

While 47% plan to expand into new countries or regions over the next three years, three-quarters see their existing country markets as the greatest growth opportunity – with 85% citing regulatory barriers as the number-one challenge when expanding into new markets.

North American managers expect most growth in existing products and markets, whereas European managers see the greatest opportunities in new products and markets – although Germany-based managers were the least likely to be looking abroad for growth.

Andrew Wilson, head of asset manager solutions for the UK at State Street, said: “An overwhelming majority see growth coming from multi-asset solutions, and changes in investor demand in general.”

Multi-asset was cited by 67% as the investment strategy type that will most drive growth over the next three years.

The next most favoured strategy was traditional actively managed equity, at 17% of the respondents, although there were regional variations: for example, multi-asset was cited as the key growth area by 80% of Australian firms, whereas only 53% of UK firms agreed – here, 30% believe traditional actively managed equity will be the greatest source of growth.

Clients are moving to outcome-orientated solutions – cash-plus, inflation-plus or specific income stream-generation, for example – rather than traditional beta-focused products, Wilson observed.

“The shift from DFB to DC is certainly part of the explanation for this,” he added.

However, 74% of managers said few firms are “currently equipped to thrive when offering multi-asset solutions”.

This is reflected in a strong focus on risk management, with 36% planning significant investment in data integration, 39% in performance analytics and 48% in risk analytics.

Addressing talent gaps will be a focus on moderate or significant investment for 53% of managers, while 64% will be investing in skills training.

This investment will happen against a difficult background for revenue and profit growth – despite the anticipated growth in assets under management.

“Increasing pressure on fees and the rising cost of both talent and regulation is squeezing margins, leading to a lot of activity to improve operating efficiencies,” Wilson said.

More than half of those surveyed saw significant opportunities to deliver this from within their organisations, while 28% looked to acquisition as a major opportunity to improve operating efficiency.

Europe is ripe for a consolidation of fund products, Wilson suggested.

The survey of 300 senior executives at asset management firms – split evenly between North America, Europe and Asia Pacific – was conducted during April and May 2014 by the Financial Times Group’s FT Remark, on behalf of State Street.

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