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Analysis: Asset management to ‘become more polarised’

The asset management industry post credit crunch will be more expensive to run and consist of only the larger players, according to a study.

Citis Global Transaction Services and Principal Global Investors assigned Create Research to carry out a survey based on the responses from 225 asset managers situated around the globe managing $18.2 trillion (11.1 trillion) in assets.

Although three possible scenarios were predicted over the next five years, the majority (70%) of respondents expect the industry to become more polarised with the large players rising to positions of dominance.

In the report, which can be <a href="
” target=”_blank”>downloaded here, Professor Amin Rajan, chief executive officer (CEO) of Create Research, says: While opinion on the shape of the new landscape is divided, one point is clear: a business model which cannot absorb further market shocks will be untenable, since further turbulence cannot be ruled out.

The two other possible scenarios explored by respondents includes an industry that will be commoditised as a result of increased regulation and risk aversion on part of the clients and also, the third scenario, that the industry will turn to innovation or vibrancy to engage client interest.

Almost half of the respondents envisage a future that is somewhere in between these two scenarios, labelled segmentation. In this case the industry will be characterised by consolidation, with separate divisions serving different type of clients, but the front, middle and back offices will be the same. This will also include a change to the fee structure to allow a closer alignment of interest with the client.

The study indicates this scenario has already begun to happen as 40% say larger fund management houses will continue outsourcing manufacturing and distribution capabilities.

Rajan says this is the most likely scenario as client inertia will work against commoditisation, and a mediocre innovation history works against the vibrant industry scenario.

Segmentation is the most likely outcome. It envisages an industry where best of breed producers, distributors and service providers come together.

Jim McCaughan, CEO of Principal, adds that absolute return type products will be a key feature of the new-look industry: Over a span of nine years in this decade, clients of all kinds have been badly burnt by two of the four worst bear markets in the last century and are now demanding all-weather products, which place capital protection at the core. Those asset managers who understand and cater to their clients risk appetite and changing needs in this new environment will stand at the vanguard of the industry, when markets recover.

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