The increasing allocation toward passives, institutional clients insourcing their investments, and the use of fintech are all pushing asset managers to cut costs and lower fees, Nick Pollard, CFA Institute’s Asia-Pacific managing director, told FSA.
According to the CFA survey, 65% of APAC respondents believe investors will increase their allocation to passive vehicles over the next five-to-ten years, while 70% think institutional investors will move toward managing assets on their own instead of outsourcing to external asset managers.
“The trend of insourcing [by institutional investors] has just started, simply to reduce costs,” Pollard said, adding that it will gradually squeeze asset managers’ profit margins.
The survey polled 1,145 asset managers, wealth managers, insurers and family offices globally. About 20% of those polled are based in Asia-Pacific.
M&A
Within APAC, 28% of respondents expected substantial consolidation over the next five-to-ten years and 58% believed there would be some consolidation in the industry.
Still, nearly 70% expected there would be at least “a moderate number of new market entrants and competitors” in the industry.
However, respondents have split views on the profit margins among asset managers over the next five-to-ten years.
Source: CFA Institute
The future profitability of the fund houses will depend on how they apply fintech innovation and develop their business models, Pollard noted.
“Technological changes can take down some costs, increase business efficiency and add more value for the clients.”
APAC money managers are more bullish on fintech than global peers due to China, which leads the world in fintech investment, he added. About 50% of APAC respondents see new technological changes bringing opportunities to investment management firms and another 27% view it as a threat.
By comparison, globally about 44% believe technology will result in positive industry changes, versus 29% negative.
Pollard is not concerned that computer algorithms will replace stockpickers or that robo-advisers will replace wealth managers. He believes a hybrid version to combine big data and human intervention will become the preferred business model.
