Asset Managers Elevate Serving Clients to Top Priority, Up from Cost Controls, Survey Says

The strategic emphasis for asset managers used to be belt tightening, according to a 2022 survey, but that has shifted to serving clients better, a new survey found.

For asset managers responding to the 2024 survey, the top priority is “enhance quality and accuracy” of what they offer clients, at 72% versus 45% in the 2022 survey. This year, the second leading priority is “improve the investor experience,” at 70%, up from 37% in 2022.

The poll two years ago ranked “creating greater efficiencies” as No. 1 at 50% (this year: 41%) and “control costs” as No. 2 at 47% (now: 46%). In other words, serving clients nowadays attracts much stronger support from the surveyed asset managers than it or anything else did in the past.

Northern Trust this year surveyed 300 global asset management firms, in a process run by research firm WBR Insights.

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“Changing market structures, such as T+1 in North America, emphasize the challenges of providing exceptional investor experiences,” the study declared, referring to a new Securities and Exchange Commission rule requiring financial institutions to settle trades one business day after they occurred.

Asset managers have taken a bruising lately, given turbulent markets and high interest rates. In 2022, a lousy year for investment returns, their assets under management dropped 10% and profit margins dipped five percentage points from 2021, according to a McKinsey & Co. study. McKinsey found that the recovery in 2023’s first half was tepid.

Indefi, a British strategic consulting firm, warned in a commentary that despite “a decade of rising markets, easy future growth is far from certain.” For instance, low-cost exchange-traded funds, which require little outside expertise from allocators and other clients, are tough competition for asset managers, the analysis contended.

Perhaps to focus on core matters, 59% in the Northern Trust survey indicated they wanted to “outsource non-core activities,” such as liquidity management, trading and foreign exchange.

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Tags: Asset Managers, cost control, costs, efficiency, McKinsey & Company, Northern Trust

The global trend of rising nationalism and populism is creating “unique risks for sovereign wealth funds,” according to a recent analysis from the International Forum of Sovereign Wealth Funds, a global network of approximately 50 sovereign wealth funds.

According to the analysis, written by IFSWF Senior Adviser Udaibir Das, the global economy is undergoing “structural challenges,” such as climate change and inequality, and that sovereign wealth funds must adapt to the new realities more than other investors.

“The rise of nationalism, populism, trade barriers, financial sanctions, and economic fragmentation has engendered a world that is inherently less stable and more brittle,” Das wrote. “The current global economic and capital market conditions necessitate reassessing conventional portfolio construction and risk management practices.”

Das writes that “resiliency risks” present sovereign wealth funds with significant challenges. He suggests funds consider working with venture capital firms to spot investment opportunities, as well as actively engaging with portfolio companies to improve their ESG practices and risk management. He noted that engagement should include regularly evaluating portfolio companies’ risk management capabilities, focusing on ESG, climate change, technology and AI, geopolitics, and other emerging risks.

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“Sovereign wealth funds must make their portfolios more resilient in this brittle and uncertain investment environment,” Das wrote. “They need to adopt more active and nuanced approaches to portfolio construction, investment themes, and strategies, using scenario analysis, stress testing, and enhancing risk management. They must also be vigilant to ensure that critical parts of the financial system remain functional when needed.”

Das also warns that inflation is another significant risk facing sovereign wealth funds. He notes that as a result of “complex macroeconomic factors” spurring short-term inflationary pressures, sovereign wealth funds have been seeking out so-called inflation-proof investments to “preserve their portfolios over time” as well as assets and investments that grow in value at least at the same pace as inflation, if not greater.

“A consensus view posits that inflation will remain elevated due to macroeconomic factors, including reflationary fiscal and monetary policies, industrial strategies to reshape supply chains, headwinds to globalization, conflict and war, and large-scale public investment to address climate change and meet sustainable development goals,” Das wrote. “These policies, expected to remain in place, add complexity to the inflation dynamics, reducing the purchasing power of unhedged assets.”

Sovereign wealth funds also need to take into account geopolitical risk, Das writes, particularly addressing funds that have larger investment stakes in volatile markets.

“Uncertainty surrounding the impact on trade flows, asset classes, transparency, and the enforceability of investment contracts in various parts of the global economic system has led to considerable apprehension,” Das wrote. “Geopolitical tensions may cause critical imports like energy, food, and minerals to be weaponised.”