Posts filed under 'General'
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
This is one of the most frequent questions I get from managers. Many managers look for an ideal sales structure. How should they organize sales vs. client relations; or, sales vs. consultant relations? Should they segment their sales force by client type or organize geographically? Where should product specialists report? How should the marketing and sales organization align with product development and management?
The answer to all of these questions is that it depends! There is no one ideal structure. If there were, all firms would have it. The best structure for a particular firm depends on: its market position; growth goals; existing client relationships; existing personnel; and investment capabilities. Designing and implementing the right structure will align the firm’s investment and marketing sides so that all personnel are synchronized and it’s brand in the marketplace is clear and strong.
Look for my new white paper coming out this week on building a premier marketing and sales organization.
September 28th, 2009
It seems that both strategic and tactical asset allocation is in transition. Strategically, conventional approaches used over the past 30 years are being called into question. Analysis of risk measures and correlation between asset classes are being challenged. A generally accepted new approach may emerge, but we haven’t seen it yet.
Tactically, there is evidence of some rebalancing into equities after the big drop, but not yet sufficient to return to pre-bear market levels, although the rally of the past six months has helped. Many investors have not taken the actions necessary to return their portfolios to their strategic allocation.
The severity of the recent market events will affect investor behavior for some time. One beneficial aspect of this period is that it will generate some new thinking around asset allocation which is likely to inform investors in the future.
September 23rd, 2009
In my discussions over the past few months, I find a lot of inaction both from an investment and business standpoint. Many investors and managers seem to be watching the markets gyrate without making any moves. Similarly, there seems to be paralysis on the business side. Since firms are suffering from a profitability standpoint, they seem to be frozen, or cutting costs without much strategic thought.
Some consider this inaction prudent; they are exercising a sense of calm within the storm. Another description might be complacency. They are neither taking actions to avoid additional risk, capitalize on opportunity, or manage their business proactively. While it has been difficult to keep up with the volatile environment, managers who have well thought through strategies, and execute efficiently, are likely to be those that take most advantage of the tumultuous times.
September 14th, 2009
As investment firms react to the new post-crisis environment, one of the issues they will need to address is what they should outsource. I have no doubt that outsourcing will continue to increase in the industry as firms will be reluctant to staff up with full time help to the degree they have in the past, as managers will be cautious to increase their fixed costs.
In the sales area, the outsourced solution is third party marketing. These businesses should continue to serve small managers and alternatives firms, but whether their use with larger traditional firms becomes more popular is unclear.
I see the largest potential increase in outsourcing in the marketing area. There are now quality resources available on an outsourced basis in RFP production, data base population, all forms of writing and communications, presentation design, website design, and various other elements of the marketing process. Managers should consider these variable cost solutions to their marketing needs carefully before restaffing with full time employees.
September 7th, 2009
Anticipation of recovery seems to be the talk of the town, or the beaches, this summer. As it applies to the investment management industry, recovery might refer to the economy, the markets, or the industry itself. There are clear signs that we may have seen the worst for all of these. But what next?? The debate rages whether the economic recovery will take the shape of a V, U, L, or double dip into a W. Will the markets continue to march on, or suffer a significant correction? Will business growth and profitability return to levels that existed prior to the downturn, or will managers continue to struggle for some time?
The fact of the matter is that nobody really knows. I find managers cautiously optimistic, hoping to return from vacations to recovery and expanding businesses, but not with a high degree of confidence. How should management respond to this environment? By staying nimble, investing in targeted ways, draining inefficiencies out of their organizations, stepping up communication with their employees and clients, and focusing on execution to drive results. Planning must be dynamic, thoughtful, and flexible. I am very hopeful that recovery is near, but my sense is that volatility will remain high, as it applies to the economy, markets and the industry, and management which stays very close to the marketplace to react to quick changes will prove more successful than their counterparts who don’t.
August 26th, 2009
I’m working with a client who is now constructing a business/marketing plan. As I mentioned in my last white paper, a SWOT analysis is very helpful in this exercise, and it’s proven to be invaluable for my client. This technique analyzes stengths, weaknesses, opportunites, and threats, and it really helps one focus. It can help to quickly identify areas for improvement and where to really concentrate one’s attention. One important point: when planning, don’t get to the end of the process before bringing in team members and subordinates. You will always get valuable input, and investment management employees generally don’t appreciate a plan which is delivered to them for execution without having had any input.
August 19th, 2009
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