Home ListingOctober 1, 2015

Margin Pressures Force Managers to Think Long-Term

Fund groups are seeking to invest more in technology and better systems to improve efficiency as margins come under pressure.

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The rising costs of doing business are forcing more asset managers to invest in longer-term business models, according to a survey by PricewaterhouseCoopers (PwC).

The research, conducted in partnership with the Confederation of British Industry, found that business volumes for UK-based asset managers during Q3 had declined at their fastest rate since March 2009, due in part to the sharp falls in equity markets this summer.

“The increasing pressure on margins is highlighting the need for asset managers to improve their operating efficiencies.”PwC also said the poor data were driven by a decline in business with other financial services firms, and “a further fall in business volumes is anticipated over the coming three months.”

The survey also found that fee income “fell sharply” in the third quarter of 2015, and managers’ expectations for Q4 were “the weakest since June 2010”. Asset management profits were expected to worsen in the last three months of the year for the first time since 2010.

“Both average and total costs rose firmly over the three months to June, and are expected to do so again over the coming three,” the report added.

These pressures have led to asset management groups focusing more of their capital spending on technology to “improve operational efficiency and customer engagement,” PwC said.

“The increasing pressure on margins is highlighting the need for asset managers to improve their operating efficiencies,” said Mark Pugh, UK asset management leader at PwC. “Replacing legacy systems and building efficient end-to-end systems reflects a long-term investment within the industry, as they strive to compete in an increasingly competitive market.”

In the past, fund managers had cited the volume of post-crisis regulations as a major challenge, but Pugh said this was “starting to become business as usual.”

A report by the Boston Consulting Group (BCG) in July warned that asset managers would have to improve their operations in order to maintain growth levels as profits had been driven more by the equity bull market than new business.

“Managers face a future in which growth isn’t a given,” BCG’s Brent Beardsley said at the time. “Achieving growth will require managers to ramp up their execution and generate more value from their commercial go-to-market capabilities—notably in marketing, sales, and pricing.”