Digitalization and outsourcing provide new opportunities
With inflation cooling and markets showing gains, asset management firms are moving out of crisis mode and gearing up for growth. They’re finding it’s like trying to jump back into an abandoned exercise routine.
Asset management firms need to build muscle. But they also need to trim some fat. The two processes go hand in hand as firm leaders work to improve their fitness. When they do so, firms are building muscle by:
- Providing superior customer experiences through personalization, client-centric services, digitalization, and scenario-based analysis that’s augmented by technology
- Reaching new customers through partnerships, mergers and acquisitions
- Leaning into the credit market at a time when high interest rates are leading some customers away from banks
- Targeting top talent that can help them develop winning strategies — and deliver on them
'Buoyant' expectations for growth in asset management
6:36 | Transcript
At the same time, firms are freeing up additional capital to devote to growth activities by eliminating costs that might not be core to their businesses. They’re finding cost savings by outsourcing processes and work that can be done for a lower cost by third-party service providers. They’re using robotic process automation and artificial intelligence to perform repeatable tasks and enabling their people to focus on the higher-level strategic work that can drive growth at their organizations.
None of this is easy, as the muscle-building and fat-trimming require the intense effort familiar to anyone who’s ever embraced a no-pain, no-gain regimen. Growing this way requires technology modernization, operating model transformation and post-merger integration — so much change — and there aren’t many people who enjoy change.
But after you’ve been at it for a while, and you’ve built the muscle, trimmed the fat and accomplished the growth you sought, you can take a breath for a moment. And it feels really good.
A hurdle for growth
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Differing paths on ESG
Firms weigh big opportunities — and a backlash
One emerging area that is important to employees — and investors — is a company’s position on environmental, social and governance (ESG) issues. That’s an area where firm priorities have varied over the past 18 months.
Firms are staying on top of regulatory compliance as new rules get issued by various regulators and standard setters. But particularly during the difficult market conditions of 2022 — which also saw a backlash against ESG investments in some political circles — some firms chose ESG-based programs and initiatives as part of the fat to trim.
Others saw ESG as an opportunity to build muscle, with opportunities to appeal to younger investors and invest in companies that are take advantage of Inflation Reduction Act incentives to build clean energy infrastructure. At the very least, many firms are looking to grow their client bases and assets under management by offering more ESG-inclusive investment opportunities.
“ESG continues to be a big focus, especially with large asset managers,” McGurl said. “They are incorporating ESG considerations into portfolio strategies and investment processes, and they’re looking for ESG-focused products and sustainable investment solutions. There’s a socially conscious investor group that’s particularly of interest to many firms.”
Ultimately, the diversity in responses to ESG mirrors the growth environment for asset management firms in general. Just as there are different routines for improving your fitness, there is a variety of opportunities to grow in the asset management sector. A firm’s decisions on where invest— and where to cut — are a part of its differentiation.
These decisions will appeal to some investors, and perhaps not to others. But finding the right mix is critical to meet the demands of the intense competition to appeal to more investors and to get them to invest more.
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