Archive for October, 2009
The spookiness of this environment is just too much for me! Are we recovering, or is it just a head fake? It seems to some (including yours truly) that we haven’t felt enough pain yet for all of the excesses we enjoyed for decades. Maybe that’s just the martyr in me. Some feel like we are climbing the proverbial wall of worry, recovering from a severely oversold condition, so the economy doesn’t have to look so good for the markets to rally.
Somehow it just doesn’t feel right, though. Everything seems a little out of whack. Aren’t we just propping up the system with all of this liquidity? The market crashed because of too much debt, right? Aren’t we just creating more debt? When will we create real things again? I think I will feel better then.
Someone tell me I’m wrong!
October 27th, 2009
Everything seems to be picking up lately. Markets, bonuses, manager hirings. Even deal activity in the industry is picking up (ie BGI, Van Kampen, TCW??) Does all of this represent harbingers of robust recovery, or another version of irrational exuberance?
My view is that we are still moving toward a “new normal” characterized by a steady state of narrower profit margins, lower fees and compensation, and generally tougher business conditions. It is amazing how a few short months after crawling away from the cliff, many are feeling really good again about business prospects. I believe we have had a dramatic snap back from the abyss that will run out of steam soon. Hope for a repeat of boom times does not produce them. We still have not flushed out all of the excesses created in the past decades. I don’t believe we will revisit the conditions of a year ago, but what we are currently seeing is just way too far too fast.
Investment managers must continue to prepare for the new normal. They need to be thoughtful and strategic about their businesses. They must focus on crisp execution. They must manage their costs carefully, including examining outsourcing options, and aggressively target growth opportunities.
October 20th, 2009
Since I posted comments earlier in the week about insurance companies trying their hands as asset managers, a few people have asked me to comment on a related business: managing money for insurers. This is something I know quite a bit about, having spent a good part of my career focused on it. Recently, it seems, a number of asset managers are looking at this segment, either for the first time, or to reexamine their current efforts. The pool of assets is large, so it is certainly worth considering as a target segment.
Insurance companies hold assets in two very different pools: their general account; and their accounts held on behalf of others, technically called the “separate account” of the insurer. Variable annuities and mutual funds are often part of the “separate account.” Unaffiliated asset managers often manage funds within the variable annuity or mutual fund family, or subadvise to these fund families. To the asset manager, this business is very similar to the mutual fund business in terms of asset classes, pricing, and manager selection.
The general account constitutes the insurer’s own funds. This is the pool of assets most managers think of when they consider the specialized segment of insurance companies. Largely a fixed income portfolio, this pool also often contains some equities and alternatives. The fixed income frequently includes specialized fixed income sectors.
The business of managing insurance companies’ general accounts is quite competitive, demanding very specialized knowledge and capabilities, and is often fee sensitive. However, for those that make the investment, asset growth can be substantial. In addition, the use of specialized asset classes allows for greater fees.
The key to being successful in this business is carefully thought through business and marketing plans that are consistent with the strengths of the manager and the market opportunities. Missteps are easy to take, resulting in either failed efforts or unprofitable business growth. Caution is wise, but with proper expert strategy, the business can be quite successful.
October 14th, 2009
Many large insurers over the years have tried their hand at asset management. With significant in-house investment capabilities and resources, on the surface it seems like a natural fit. However, the results of these efforts have been mixed at best. Having been directly involved in a couple of these situations, and having seen many more from the outside in serving them as clients, I know first hand what it takes to be successful and the pitfalls to avoid.
While many of these firms invest their own assets quite well, the business of managing money for outside clients requires additional skills and resources. Investment capabilities that were built for the insurer’s needs must align with the needs of other clients or be augmented. Other requirements include reporting, client servicing, and marketing.
In addition, outside clients need to feel that the organization values their investment needs as much as it values its own. Conflicts must be anticipated and addressed. Finally, many firms simply give up on the business too early. They underestimate how long it takes to build an asset management business. If they do not commit to the business for the long term, other priorities may crowd it out.
October 12th, 2009
As asset managers try to meet client needs in the “new normal” environment, they will have to provide specific investment solutions more than ever. The best investment firms have always approached their client needs in this manner. They first seek to understand those needs in great depth, then provide solutions to meet those needs based on their investment capabilities.
Other managers approach the marketplace with a menu of defined products which may or may not meet client needs. If there is little or no flexibility around those products, in terms of investment design, packaging, or pricing, there must be a very close match between client needs and product features for a sale to be made and relationship to be built.
The “new normal” will be defined, in part, by greater buying leverage and less selling leverage. In this environment, clients will demand even greater flexibility around investment solutions so that their specific needs are met. Firms that have historically approach the marketplace in this manner will be in the best position to succeed.
October 7th, 2009
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