Though the report, titled “Thriving in the New Abnormal”, was aimed at the North American asset management industry, the trends and themes have some global application.
The report announced “the end of 30 years of exceptional investment returns, and of any expectation that these returns would continue indefinitely” and went on to claim that an asset management revolution is unfolding.
A confluence of trends is creating a large scale shake-up in asset management and will put up to $8trn in “benchmark-hugging active assets…up for grabs over the next several years as clients re-examine their core investment beliefs and manager relationships”.
The firm also predicted substantial capital flows into alternative investments such as private equity and infrastructure and a digital revolution that goes way beyond rob-advisers “to become a driving force for radical improvements across the entire asset management value chain, including portfolio management, capital markets activities, and the back and middle office”.
Moreover, a stricter regulatory regime “will force asset managers to reframe their distribution relationships and retool their products to position themselves as fiduciaries in the service of investors”.
The consulting firm believes that global market returns for the past 30 years “have been an historical anomaly.
“[T]he macro trends fueling these returns are all fading to some degree. The result will be a decline in average returns for equities of 150 to 400 basis points and of 300 to 500 basis points for fixed-income assets.”
The report did say opportunities will emerge. As diminishing returns become evident, alarm bells will sound for institutional and retail investors.
“There will be opportunities for asset managers to help clients close these gaps, both with superior returns and new solutions.”
Firms that succeed in the new reality will need to, among other things, “shift their focus from top-quartile performance to consistent results delivered at scale, from relative returns to outcomes, and from maximising assets to meeting liabilities”.
The firm added that asset management firms that stick with the traditional business model will find it increasingly difficult to compete.