The Next Generation Asset Manager
In our ongoing meetings and discussions with asset managers, a number of themes have evolved during the post-crisis “new normal” environment. One very important and commonly heard theme is that institutional clients are looking for solutions, not products, from asset managers. While some institutions have been harping on this for some time, a good part of the industry is now insisting on it.
Over the past generation, the way to win in the institutional business was primarily to develop consistent and solid performance in asset class driven products, gain the support of consultants for those products, and build product-driven revenue streams. Stable focused asset managers who had demonstrated expertise in specific products could develop growing profitable businesses. Sales, client relations, and consultant relations professionals concentrated on being very knowledgeable about their firm’s investment expertise while institutions and their consultants determined investment objectives, risk tolerance, and asset allocation primarily within a mean-variance framework.
We are now transitioning to the next generation, a process that has accelerated due to the risks that came to the forefront as a result of the financial crisis. Institutions are now questioning conventional approaches to determining investment objectives and asset allocation, challenging their consultants and asset managers to devise solutions which satisfy the risks that they now see in the marketplace. Specific factor risks are being discussed, such as inflation/deflation and liquidity. Downside risk rather than volatility is commonly considered.
The next generation asset manager must provide robust solutions to institutions’ financial problems in order to be successful. It must assemble investment capabilities in such a way as to address current marketplace concerns in addition to, or instead of, providing asset class specific products. Sales, client relations, consultants relations, and investment personnel must seek to understand an institution’s specific problems and needs, then devise solutions to address them. As has been the case with insurance companies for some time, asset managers must understand how their investment capabilities will fit the specific needs of pension funds and endowments. For those that take the time to study these issues and align the investment capabilities of their organizations with their clients’ needs, the rewards will be well worth the effort.
Add comment October 5th, 2010
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