The world that asset managers have to work in is very difficult because it is always changing, broken up, and unpredictable. The rules of the economy have been turned upside down, technological changes are speeding up, and the way things work on a global scale is changing. Because of these changes, there is more pressure than ever on wealth growth and making money.
Important Projects Providing Transformation in Strategy
According to EY’s modelling, the total operating margins could go down by three to five percentage points over the next five years. Now, strategic change is not a choice; it’s a must. There are six main projects: refocusing on the client, digital acceleration, reimagined investment propositions, maximising growth areas, transformative business models, and taking advantage of possibilities outside the company.
At the same time that asset managers are starting to update their strategies, they are also being asked to speed up innovation, work together more meaningfully, make sure that everyone has access to money, and make sure that data sources and technology platforms can talk to each other.
It’s important to have different strategies, good leadership, talent management, and for data, technology, and growth to all work together. The key to success will be to keep focusing on performance, with a clear view from the top down and the goal of creating value for clients.
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Looking Forward to Radical Futures
Firms need to get ready for a wide range of very different outcomes that could happen by 2030, such as the return or disappearance of standard fund structures. It is important to develop a sophisticated strategy for sustainability that balances the duty of care for others, the environment, and shareholders.
As competition heats up, it’s more important than ever for businesses to work together. Asset management will always be important, but the way it is done, how it is structured, and how it is organised may need to be completely rethought.
How to Get Through a Troublesome Decade
In the first few years of the 2020s, there have been big changes in the asset management industry, which has made it harder to make money than it was before. The political situation around the world has changed because of battles that have affected markets and changed the way global alliances work. In this fragmented and unpredictable world, asset managers need to be able to quickly change with the times and be flexible to take advantage of new possibilities.
Population changes, the need to be more environmentally friendly, and the rise of digital technology are seen as the main causes of disruption. Populations are growing quickly, getting older, women getting more financial power, cities growing, worries about sustainability, and advances in technology like AI and decentralised finance are all changing the industry. In the next ten years, asset managers will be judged on how well they can handle these changes.
Asset management is going through a big change because of the bear market in 2020 and the instability in 2022. These changes will last for a long time. Even though asset managers have been able to handle market changes well, they are facing a growing financial squeeze.
Stress on the economy: the effects of recent shocks
The bear market of 2020 and the following volatility of 2022 have changed how asset managers do their jobs and how much money they have. Even though people in the business quickly adjusted to changes, the financial pressures have been unavoidable. In 2022, the industry’s assets under management (AuM) dropped by 14%.
This was due to falling AuM, quick withdrawals, and a loss of investor trust. Costs have gone up because of things like inflation, managing crises, keeping operations running smoothly, and following the rules. Because there are fewer people with skills in the business, there is a bidding war for experienced and tech-savvy staff.
Loss of Profitability and Challenges Across the Industry:
Even though steps have been taken to cut costs, limiting spending, and reorganising, the industry as a whole is becoming less profitable because income is weakening and costs are going up. For example, in 2022, profit margins in a certain business fell by 3.2%. Some companies get stuck in a negative feedback loop where they can’t invest in the people and technology they need to grow because they aren’t making enough money.
Over the next five years, asset managers are likely to face even more financial stress. Three main factors will determine the growth, revenue, and profit prospects for the next five to ten years:
Individuals who invest will want a wider range of returns, so portfolios will need to be reorganised on the fly. Wealthy investors will want more personalised and all-around options, while regular investors will seek out less expensive options. Even if the trend towards passive investing slows down, investors will want fees that are similar to passive investing for strategies that are carefully handled. This will cause costs to rise.
There will be more people after the job of asset manager, both newcomers and people who have already worked in the field. So that they can make better use of their cash and spread out their businesses, insurers will handle their assets more. The public market and the private market will be more alike, and private credit and equity managers will enter the market to fight. FinTechs that know how to use data and technology well will get a lot further, especially in the area of managing wealth.
Asset growth probably won’t get as much help in the next few years as it did in the last ten years. Changing monetary policy, higher drawdowns, lower savings rates, and global and macroeconomic shocks will all affect investment strategies. Lessening AUM growth and fee erosion across all asset classes will have an impact on earnings, making cost-effectiveness and value for money even more important.
Asset management has to deal with problems that have never been seen before and a world that is always changing and unpredictable. As operating margins may go down, six important projects come to the fore: customer focus, digital acceleration, and transformative business models. For success in the next ten years, you’ll need to be able to think outside the box, work with others, and adapt to changes in the economy, population, and new technologies.
