Archive for January, 2010
As 2010 gets underway, broad trends toward outsourcing of a variety of services and functions continue. For the foreseeable future, we will be in an era where efficiency and tight execution predominates. Those firms that constantly examine their cost structure and optimize value per dollar spent have the best chance of being winners.
We have written before about the opportunity to outsource various marketing support functions to gain efficiency. There are variable cost solutions in the marketplace for marketing communications, RFP production, and data base management that offer low cost high quality services.
Another example of this trend applied more broadly is exhibited in the insurance asset management marketplace. Insurers are outsourcing asset management in ever greater numbers. It seems they have concluded that their core competency is in insuring risk rather than manages investments. A number of asset managers have noticed this trend, and alertly have started to explore their opportunities in this space. Of course, managing assets for insurers requires specialized capabilities so it behooves them to carefully analyze their potential positioning in the insurance segment before jumping in with both feet.
Overall, firms should continue to look for ways to streamline their operations and narrow their focus. Outsourced resources provide interesting solutions to certain functional areas. Look for this trend to gather momentum in the months to come.
January 18th, 2010
There has been much talk lately of “convergence” in asset management. That is, are alternative and traditional asset management styles and products converging so that there will no longer be much distinction between the two? Some years ago DE Shaw launched 130/30 strategies which are hybrids between the two forms of management. Recently Citadel announced they were launching a traditional fixed income business. There are rumors of other alternative managers launching traditional businesses. Certainly, over the past several years, many traditional managers launched alternative products, although in most cases they were sidelights to their main businesses.
In my view, distinctions between alternative and traditional forms of investment management have always been somewhat artificial. Certain strategies and products have blurred the lines for years. At the end of the day successful investment management strategies need to add economic value to clients and meet the objectives clients set out for those strategies within the context of their overall portfolios. Labeling the strategies alternative or traditional adds little to the understanding of whether they add such value and are proper fits.
Clearly, there are cultural and language differences between firms that have their roots in the traditional vs alternatives sides of the business. But those are inwardly focused dimensions. In order to succeed and prosper in the current environment, asset managers must, more than ever, keenly focus on client needs and respond to them with solutions-based strategies. In their words and actions they must put the client first, which might require massive cultural changes for some managers. In the end, though, we are all in business only to serve our clients.
January 11th, 2010
On the first business day of the year, we are all hopeful and optimistic for a successful and prosperous year, especially after the difficult environment we’ve recently experienced. However, while we may yearn for the easier environment we previously enjoyed, it is more likely that we will settle into a new normal environment, characterized by increased competition and thinner margins.
In some sense, this seems right, since the asset management industry enjoyed out-sized margins for many years. But it will require sharpened skill sets and new tactics. Resources will need to be deployed efficiently, minimizing waste. All logical alternatives for accomplishing tasks and executing functions should be considered, such as appropriate outsourcing. Strategies must be focused, based on careful planning, and executed crisply.
We all hope this year will bring an easier operating environment. But we must be prepared for continued challenges to come.
January 4th, 2010
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