Globalisation of funds a strategic priority but expansion still in very early stages
Asset management firms still in process of determining how to best capitalise on opportunities around the world
According to a new report whose publication is sponsored jointly by Citi and Legg Mason, fund managers have rapidly ventured abroad in this decade in search of new clients and higher returns. The pace of this expansion has accelerated lately as pension restrictions are lifted in emerging economies and pension clients increasingly want all-inclusive global mandates. Retail clients are more interested in funds with universal themes, and new wealth generation is creating the opportunity for more retail clients around the world to invest. The US still remains the industry's epicentre but Europe and Asia are its new growth engines.
As half the assets have come to be held outside the domestic markets, significant capability has been created in over 70 countries via a mix of new starts, organic growth, M&As and local alliances. However, this opportunistic mix has complicated the potential synergies in front, middle and back offices.
The report shows that globalisation has enhanced fund managers' capabilities to do cross-border business. But its bottom line benefits are restricted so far because of the fluidity in the ways in which businesses are run on the ground. Furthermore, management bandwidth to run a global business has been scarce, as has been the forward spend on it.
Not surprisingly, the majority of fund managers report that the operating leverage they have in their home markets is hard to replicate abroad. While their pragmatic rules of engagement have promoted creativity and enterprise, the related individualism brings about its own challenges in terms of talent retention and cost-effective growth.
Neeraj Sahai, global head of Citi Securities and Fund Services said, “But there are clear winners. The report shows that around two in five managers have succeeded by having a clear strategy on investment performance, client needs and alliances with best of breed service providers in the back office.”
Those firms who are finding success in pursuing global strategies have paid a lot of attention to the nuts and bolts issues in the critical areas like scalability of investment strategies, operational excellence and incremental integration via alliances with the best-of-class distributors and back-office service providers. To their credit, fund managers realise that their efforts in this decade amount to a 'first stage' rocket: they will need new rockets as they progress on their global trajectory.
“Like anything involving fundamental business evolution, the global footprint comes at a price. Dysfunctional tensions are always a risk. Examples of missed opportunities and mutual misunderstandings are to be expected. Some of the mega-mergers involving banks and insurers had to be rolled back as shareholders lost patience.” said Amin Rajan, report's principal author and CEO of CREATE-Research, a UK-based consultancy.
“Globalisation is clearly the future for our industry. As with any effort to operate across multiple countries and cultures, we've learned by doing, which we believe gives us valuable insight for the future. We are pleased with the way our global business is progressing. This report identifies some of the key factors and pitfalls which we believe will be important to succeeding in the investment management business on a global scale,” added Peter L. Bain, Senior Executive Vice President of Legg Mason.
The report concludes with recommendations on how senior managers can minimise the inherent tensions in their transnational aspirations by implementing a strategic performance process that promotes integration, innovation and accountability that are central to a vibrant global funds business.
*Globalisation of Funds: Challenges and Opportunities
Available free of charge from www.create-research.co.uk
Contact details of the principal author:
Prof. Amin Rajan:
Tel: +44 (0) 1892 526 757
+44 (0) 7703 444 770
Note for the Editors:
This study is based on a postal survey and structured interviews with top executives in 102 asset managers and pension funds in 17 countries, with assets of US$27 trillion.
It is the largest and first study of its kind to look at the impacts of globalisation and how it has affected the asset management industry. Its publication has been sponsored by Citi and Legg Mason.
CREATE is an independent research centre that focuses on emerging trends in asset management and the strategic changes they require.
It has published a number of reports and articles on the industry based on a research programme that started in the 1990s. Details are available on www.create-research.co.uk .
Citi Markets & Banking is the most complete financial partner to corporations, financial institutions, institutional investors and governments in the world. As a global leader in banking, capital markets, and transaction services, with a presence in many countries dating back more than 100 years, Citi enables clients to achieve their strategic financial objectives by providing them with cutting-edge ideas, best-in-class products and solutions, and unparalleled access to capital and liquidity.
Citi, the leading global financial services company, has some 200 million customer accounts and does business in more than 100 countries, providing consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management. Major brand names under the trademark red arc include: Citibank, CitiFinancial, Primerica, Citi Smith Barney and Banamex. Additional information may be found at www.citigroup.com or www.citi.com.
About Legg Mason
Legg Mason is a global asset management firm, with approximately $992 billion in assets under management as of June 30, 2007. The company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).