I. Building external and internal pressures
The Swiss investment management industry has faced several significant challenges in recent years.
We observe that Swiss asset managers are taking measures to improve their Target Operating Model (TOM) to address the above challenges. Offering more attractive investment solutions, having an operating model that allows for scalability, and controlling the cost base have become critical areas of focus.
II. Re-shifting focus
The challenging operating environment is leading many Swiss asset managers to reconsider their priorities and explore new opportunities. The most important actions that we observe are:
Asset managers are clearly responding to mentioned internal and external pressures, the implications of which we will discuss next.
(i). Generating alpha through product differentiation
Focus on sustainability: As the industry shifts towards theme-driven portfolio construction, ESG is a prominent theme. Client expectations are pushing asset managers to offer more sustainable and ethical products, and in response asset managers must review their investment strategies, enhance research capabilities through talent acquisition and data integration, and strengthen risk management and regulatory compliance frameworks.
Move towards alternatives: Compared to traditional liquid investments, alternative investments (e.g. private equity, private debt, real estate, infrastructure) have shown greater resilience, with AUMs increasing in recent years.3 As interest grows in alternatives, asset managers are expanding their offerings to include these investment products for diversification.4 Focusing on the impact on operations, these asset classes are managed, invested in, maintained, and reported on differently from other asset classes. To manage them asset managers need to to develop specialised expertise and adjust their investment strategies and operating models.
Figure 1: Swiss Asset Managers adapting to global rise of alternatives
(ii). Creating operational efficiency through technology adoption and ecosystems
Faced with pressures on margins, asset managers are investing in technology in order to improve efficiency. Without the right technologies, processes, and controls, asset managers will fall short of client expectations and internal efficiency goals. We observe that, compared to their lagging peers, technology front-runners enjoy 25% greater client tenure, five times the organic growth, and 12% more multiproduct use amongst clients.5
Third party vendor tech solutions can help break down siloes across functions, providing end-to-end operational transparency via offered ecosystems. Adoption of these comprehensive solutions, in combination with disruptive technologies are essential for asset managers to stay competitive. Another driver in the industry is the move towards a more integrated technological landscape through the implementation of platform solutions offering front-to-back capabilities and synergies.
Capital-intensive investments in technological architectures, data analytics capabilities, cyber security, and governance are crucial for asset managers to keep up with industry trends. Especially the latter is often wrongly treated as an afterthought.
Figure 2: Governance measures are not keeping pace with digital transformation efforts
(iii). Regulatory resilience through governance structures and compliance frameworks
Regulators are taking notice of the product- and technology-driven trends in the asset management industry and are actively developing more stringent regulations.2 The growing extent of regulations is putting extra pressure on asset managers’ costs structures. To manage this adequately, asset managers must review their compliance processes and their risk management frameworks, with a focus on efficiency gains, whilst remaining effective. Many firms are therefore establishing governance structures and controls to manage risks in a more regulated industry landscape.
In response to the challenges they face, Swiss asset managers must adapt swiftly to maintain their competitive edge. Product differentiation through an increased focus on sustainability and alternative investments, digitalization, the move towards ecosystems, and governance improvements are reshaping operating models across the industry.
To future-proof their businesses in this challenging landscape, asset managers are increasingly revising and adapting their operating models. A Target Operating Model (TOM) diagnostic can help identify the issues most impacted by emerging trends and regulations, where the asset manager may be lagging behind the competition. The diagnostic covers the as-is assessment, identification of pain points, depicts a clear image of the target state and highlights areas for improvement to ensure long-term organisational resilience and longevity. Feel free to reach out to us to discuss the possibilities with respect to your TOM.
Figure 3: The Asset Management Target Operating Model (TOM)