VIEW OF POST-FINANCIAL CRISIS INVESTMENT LANDSCAPE CHALLENGES INDUSTRY
Global research study predicts three possible scenarios for the evolution of the industry in the medium term
New York - 22 June, 2009 – An independent study from CREATE-Research, commissioned by Citi’s Global Transaction Services and Principal Global Investors (Principal), has found that asset managers worldwide are divided over the future of their industry post credit crisis. Issued today, the global study envisages three possible scenarios for the industry’s evolution over the next five years.
The report entitled 'Future of Investment: The Next Move?', is based on a survey of 225 asset managers from 30 countries, responsible for a total of $18.2 trillion of assets. The report found that respondents anticipate that increased regulation will raise costs, intensify competition, create fee compression and hasten mergers and demergers.
While no dominant scenario was predicted for the next five years, 70% of respondents expected the industry to become more polarised, with large players rising to positions of dominance within one of three scenarios: commoditisation, vibrancy or segmentation.
Prof. Amin Rajan, CEO of CREATE-Research commented:
"The asset management industry stands at a crossroads as it emerges from the recent meltdown. 'Asset Managers need a new narrative on what they stand for and what they deliver, at a time when regulatory and client drivers remain uncertain.
"While opinion on the shape of the new landscape is divided, one point is clear: a business model which cannot absorb further market shocks will be untenable, since further turbulence cannot be ruled out."
At one extreme, 34% of respondents expect their industry to become commoditised as a result of increased regulation and risk aversion on the part of clients, as investors seek capital protection. Under this scenario, scale will be the key to success as commoditisation delivers standardisation of products and processes that are consistent with economies of scale.
At the other extreme, 17% of those surveyed expect their industry to become more vibrant with a closer alignment of interests between clients and asset managers. Under this scenario, innovation which adds value to clients will be critical.
In between the two scenarios is the one that envisages a segmented industry characterised by consolidation, separate centres of excellence that best serve different client segments, alliances across front, middle and back offices which allow a greater concentration of capability, and a changed fee structure which delivers a closer alignment of interest. Almost half (49%) of respondents anticipate this scenario.
The report indicates that business models associated with the segmentation scenario have started taking root, with larger fund management houses already decoupling manufacturing and distribution. 40% of respondents expect this to continue.
Professor Amin Rajan continued:
"Client inertia will likely work against the commoditisation scenario and asset managers’ mediocre innovation track record will work against the vibrant industry scenario. Therefore segmentation is the most likely outcome. It envisages an industry where best of breed producers, distributors and service providers come together."
Jim McCaughan, CEO of Principal Global Investors commented:
"Over a span of nine years in this decade, clients of all kinds have been badly burnt by two of the four worst bear markets in the last century and are now demanding all-weather products, which place capital protection at the core. Those asset managers who understand and cater to their clients’ risk appetite and changing needs in this new environment will stand at the vanguard of the industry, when markets recover."
The report also cites that outsourcing of non-core activities will continue apace, freeing senior management to concentrate on four strategic business areas that are critical in delivering a vibrant industry: investment capabilities; increased alignment with client’s interest; service proposition; and business capabilities.
Neeraj Sahai, Global Head of Securities and Fund Services, Citi, commented:
"Asset managers are now responding to the realities of the new environment and are increasingly exploring opportunities to adopt variable-cost models by outsourcing administration functions. This is an important structural shift in the model for the industry's value chain, and the ultimate reward could be a more efficient use of capital and maximization of alpha."
The full report is available at: www.create-research.co.uk.
The report entitled 'Future of Investment: The Next Move?', was jointly issued on 22 June 2009 and includes the results of a survey of 225 asset managers from 29 countries and interviews from pension funds, wealth managers, distributors and industry regulators. The research was commissioned by Citi and Principal Global Investors and was conducted by Create research.
Citi, the leading global financial services company, has approximately 200 million customer accounts and does business in more than 140 countries. Through its two operating units, Citicorp and Citi Holdings, Citi provides 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. Additional information may be found at www.citi.com.
About Citi Global Transaction Services
Global Transaction Services, a division of Citi’s Institutional Clients Group, offers integrated cash management, trade, and securities and fund services to multinational corporations, financial institutions and public sector organisations around the world. With a network that spans more than 100 countries, Citi’s Global Transaction Services supports over 65,000 clients. As of the first quarter of 2009, it held on average $278 billion in liability balances and $10.3 trillion in assets under custody.
CREATE is an independent think tank specializing in strategic change and the newly emerging business models in global financial services. It undertakes major research assignments for prominent financial institutions and global companies. It works closely with senior decision makers in reputable organisations across Europe and the US. Its work is disseminated through high profile reports and events which attract wide attention in the media. Further information can be found at www.create-research.co.uk.
About Principal Global Investors
Principal Global Investors is a diversified asset management organization and a member of the Principal Financial Group®. Principal Global Investors manages $189.1 billion (as at 31 March 2009) in assets primarily for retirement plans and other institutional clients, and draws from the expertise of 447 investment professionals. The firm offers a broad range of investment capabilities, including equity, fixed income and real estate investments as well as specialized overlay and advisory services. Our global reach provides an information advantage in researching and managing investment portfolios. At the same time, we serve clients on a personalized basis and tailor our capabilities to specific client objectives and investment goals.
Principal Global Investors (Europe) Limited is an integral part of the global network at Principal Global Investors and is authorised and regulated by The Financial Services Authority. Based in London, the office provides the local fund management, customer service contact and a single window for investors to access the global expertise of the Principal Financial Group.
Principal Global Investors provides clients with substantial flexibility and choice among portfolio structures, client reporting options and product features. It also offers a range of mutual funds designed for institutional clients wishing to invest via a pooled vehicle.
About the Principal Financial Group
The Principal Financial Group (The Principal®) is a leader in offering businesses, individuals and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies. A member of the Fortune 500, the Principal Financial Group has $236.6 billion in assets under management and serves some 18.8 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.