The asset management industry continues to face fundamental changes that have been transforming the competitive landscape over the last several years.
The Global Asset Management Industry Outlook 2007 examines the impact of these trends both on “traditional” asset management firms – whether subsidiaries of banks, securities firms, or insurance companies, or stand-alone entities – and on “alternative” investment firms – such as hedge funds and private equity. These vehicles are growing rapidly as both institutional and individual investors are allocating an increasing percentage of their portfolios to them in their search for higher returns and strategy diversification.
“Traditional asset management firms are also increasingly competing with insurance companies, both to manage DC plan assets and to capture these assets when they are rolled over.”
Meanwhile, serving the corporate pension market is changing as companies continue the transition from offering defined benefit to defined contribution plans. The race to create new products to serve this market is underway, with lifecycle funds one popular choice. The search for products that would appeal to the growing pools of individual investors led the Financial Times and ABN Amro to design a competition for readers to dream up “the financial product or service of the future.”
The demographic shifts in developed economies that are driving these changes are having important impacts on asset managers. The baby-boom generation, which is just beginning to retire, will be drawing down their pension plans. And in both North America and Western Europe, the departure of baby boomers from the workforce is igniting a battle among asset management firms to attract and train talented professionals from the new – and stylistically different – generation now entering the work force.
The member firms of Deloitte Touche Tohmatsu believe asset managers should pay special attention in 2007 to the following five key issues.
The five key issues
- The challenge posed by the shift to corporate defined contribution plans.
The continuing shift of retirement assets from corporate defined benefit to defined contribution plans is creating a new competitive landscape. To be successful, traditional asset management firms will need to respond to the needs of individual plan participants for financial information and advice, while working to create innovative products appropriate for less knowledgeable investors.
- Alternative investments undergo growing pains.
Assets continue to flood into hedge funds and private equity funds, and increasingly these come from institutional investors, which demand much greater transparency. In addition, some hedge funds will need to respond to investor concerns that their risk management processes may not be strong enough to handle the risks they have assumed.
- Ensuring data security and privacy.
Traditional asset management firms are gathering more confidential customer information than ever before. They face the significant challenge of safeguarding the privacy and confidentiality of their growing databases of sensitive information.
- Coming transformation of risk management.
In the past, traditional investment management firms focused on market and credit risk, but now they are equally concerned with managing operational and compliance risks. Firms face the challenge of consolidating all the various risk-related issues and initiatives across their organizations to manage their risks more effectively and efficiently.
- Recruiting the joystick generation.
The aging of the workforce in most developed economies, coupled with increasing skill requirements in many industries, has created fierce competition for talented professionals. To successfully recruit the members of the new generation of workers now entering the labor force, asset management firms will need to understand and respond to their distinctive profile and requirements.
About the report
For almost a decade the member firms of Deloitte Touche Tohmatsu have released an annual Global Asset Management Industry Outlook report, outlining the key challenges facing the asset management sector for the coming year.
The aim of the report is to draw on the thoughts and experiences of the many partners and practitioners around the world who serve in the sector, in order to provide clients with a broad view of what challenges and opportunities to expect in the coming year.
The past year has seen a continuation of the fundamental changes that have been transforming the asset management sector. Demographic trends, such as the burgeoning population nearing retirement and the influx of a new generation into the workforce; changes to the competitive landscape, such as the continued growth and popularity of alternative investments; and the unique challenges posed by the need to safeguard customer information in an increasingly accessible world, are some of the issues examined in this year’s report.
