PwC works with many of the world’s leading asset managers including BlackRock, the Vanguard Group and UBS.
Libby’s advice straightforward: adapt or you might not be around tomorrow.
Three issues – margin pressure, scale and uncertainty – are creating significant challenges for the industry.
The way the asset management industry has traditionally operated has been upended and driving this change is the rising use of passive investments, such as index and exchange traded funds, which now make up more than half of equity assets managed in the US.
“The investor now dictates the type of product they want. The end investor no longer just says ‘I want to invest in this or that asset class’ – they have an outcome in mind."
Adding to the pressure is a glut of new regulation led by Mifid II.
“We had fairly little change in the industry for decades,” Libby continues. “But now we can see momentum building which is only going to accelerate. There is anxiety everywhere.”
This institutional shift towards lower-cost products has created margin pressure and raised new questions around scale. Libby argues that prosper in low-margin environment asset managers must operate on a larger scale to drive sufficient revenues.
The flight of investors towards passive investments has created a buyers’ market and, as a result, active managers need to re-think their position in the market.
“What do you want be? A niche player and focus on one asset class and aim to be the best? Or work across different asset classes and provide clients with proven outcomes? Once you have made that choice you have to align your organisation to ensure growth – and that will require capital deployment.”
“This shift is happening,” Libby continues. “The investor now dictates the type of product they want. The end investor no longer just says ‘I want to invest in this or that asset class’ – they have an outcome in mind [because of passives can provide certain benchmarks].
“It’s a massive change that you cannot afford to ignore.”
“Asset managers will need to deploy capital smartly to establish a winning strategy. That investment could be in technology – involving in-sourcing and out-scouring and partnerships or whatever – or it could also focus on attracting people with different skill sets,” he adds.
“We are going to see significant upheaval in the coming years.”