Posts filed under 'General'
Since the first of the year, there has been a lot of buzz around business picking up, and many in the industry are finally exhaling. But as more sales opportunities arise in asset management than last year, many are also finding that their approach needs to be altered in order to successfully close business. The post-crisis environment is characterized by more cautious customers who are demanding more skills and services to meet their needs. It is not sufficient for sales personnel to understand their products; they must also be insightful about how their products will meet the specific needs of the client. In fact, the use of the word “product” is now becoming passe. The sale is now solutions based. Clients want to understand how the asset manager will react to market volatility when it returns; and, they generally believe it will return.
Therefore sales professionals must gain a deeper understanding of their clients’ and prospects’ needs than they have in the past, and be able to convincingly explain how the capabilities they represent will meet their needs. Furthermore, they must convince their prospects that the asset manager they represent can effectively navigate ongoing, difficult, and unpredictable markets better than their competitors. Those that master these skills will be the winners in this challenging environment.
March 9th, 2010
Since the New Year, I have spoken to dozens of asset managers about a variety of issues related to the management and potential growth of their business. I have never seen such a divergence of views regarding the issue of spending to build their businesses. It seems that we have gone from an environment where many firms were concerned about their survival to a period where some are continuing to cut budgets, while others are aggressively growing, and everything in between.
I continue to believe that we are in the proverbial “new normal” environment which will be characterized by a prolonged period of sluggish growth, tighter profit margins, and more competition as compared to the environment that preceded the financial crisis. Many managers will never replenish their staffs entirely, while some will strategically position themselves for growth through focused investment capabilities and thoughtful dynamic marketing. Outsourcing alternatives will continue to grow in variety and quality as managers are reluctant to commit to the fixed costs of hired staff. Execution will need to be efficient and effective in order to minimize waste. The winners will separate themselves from the pack through best in class capabilities and management across the board and up and down the line.
As this story unfolds, there will undoubtedly be additional surprises. Stay tuned!
February 26th, 2010
It is much easier to be successful when focused narrowly on an area of specialization. This principal applies to many businesses and activities. In the asset management industry, success often comes more quickly to firms that focus narrowly on core competencies. They are able to concentrate resources specifically in the investment capabilities where they have truly differentiated skills and competitive advantages.
Another application of this principal is in consulting businesses. One must offer advice in disciplines where one has demonstrated skill and expertise. When a marketplace need aligns with differentiated skills that are properly focused on a service offering, success often follows. This can be very rewarding on both a personal and professional level.
In the difficult current economic environment, the specialization principal is even more important. In order to differentiate oneself from the competition, one must have demonstrated expertise in a specific area as buyers look for the best skill sets for specific needs. In the times we find ourselves, this principal applies to both businesses and individuals looking for an edge.
February 9th, 2010
No one knows if the recent market drop will turn out to be a minor correction or something more substantial. But if 2010 turns out to be a rocky year for the markets, are asset managers more prepared for difficult times than they were two years ago?
With the memory of the financial crisis so fresh in everyone’s mind, there is no question that managers will react more calmly and soberly in the event of a substantial setback. They should now be prepared from both an investment and business standpoint to better handle such an event. Already, clients are demanding more solutions-based investment approaches, with an emphasis on transparency and customization. Hedge funds, in particular, must make significant adjustments in their approach to meet these demands.
Business management within the industry is also responding. Firms have become leaner in anticipation of tighter margins as hiring decisions become more cautious, and the environment generally becomes more competitive. Outsourcing is increasing as firms recognize the availability of talented professionals who can provide top quality services at lower and more variable costs. The most successful firms will act strategically with increased focus on their core competencies.
Overall, the industry has begun to make necessary changes. If we have a particularly difficult year, we will see whether they have adjusted quickly enough.
February 1st, 2010
Recently I wrote of how both traditional and alternative managers need to focus on their clients. Their styles are converging in the marketplace and the lines between the two types of firms are blurring. This can be seen in both the products and services they provide, and the approach to their marketing efforts.
Cutting edge firms will adopt the best practices from both traditional and alternative managers. These practices will include: truly differentiated investment capabilities; strategic business planning; and outstanding execution.
The big battle ground for these managers is likely to be the pension fund industry. Pension funds have not allocated nearly as large a percentage of their assets to alternatives as endowments have. We are likely to see a secular rise in that allocation. Asset managers who can provide both investment excellence and client focused services stand the best chances for winning the battle. Aligning interests with these institutions and committing to long term relationships will be key elements to success.
January 25th, 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
While there are some nascent signs of recovery, and the markets like to climb the proverbial wall of worry, every day seems to bring more news of headwinds to the economy. Some of the headwinds are current events like debt problems in Dubai followed by financial problems within the EU. Some are longer term changes in attitude such as the well documented increase in savings by consumers which is likely to last longer than the immediate economic downturn. While this is healthy longer term, it does not help support the near term recovery. Overall, rather than solving for the debt overhang, the government seems to be adding to it.
These factors all fit within the typical scenario for credit induced downturns which tend to be much more difficult to recover from than cyclical downturns. This “new normal” environment will require management to follow careful and thoughtful strategies, and executive crisply and flawlessly. Executives will need to be on the top of their game. However, those that differentiate themselves from the pack could enjoy excellent success.
Dorothy, we are not yet out of the poppy fields. Let it snow, let it snow, let it snow!
December 17th, 2009
In the post-financial crisis world, there are a lot of questions swirling around regarding the demand for hedge funds and what their proper allocation should/will be within investment portfolios. Will the prior trends toward wider acceptance resume, or will they be curtailed by residual fears of loss and mismanagement?
I believe that the hedge fund world will be broken down much more specifically by strategy. It has been recognized by many for some time that there has been an artificial separation between “traditional” and “alternative” investment strategies. The alternative bucket has encompassed all types of disparate investment strategies. Going forward, analysts, investors, and plan sponsors should and will continue to incorporate a variety of strategies into portfolio structures based on the risk and return characteristics of each strategy rather than an artificial label.
The more important separation, which will become more prominent, will be between alpha and beta, where strategies that generate true alpha will continue to be rewarded, while more beta oriented strategies will be marginalized to compete with the growing array of passive alternatives. In addition, within the hedge fund arena, greater scrutiny will be placed on transparency and the need for managers to operate like their traditional counterparts, increasing their need for operational infrastructure, compliance support, and other mainstream business functions. As these resources are built, hedge funds will become more and more mainstream investment alternatives, led by those that are most easily understood and transparent. By strategy, long/short equity appears to be a prime candidate; indeed it seems that such strategies are already growing institutionally.
December 10th, 2009
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