2021 Asset Management Outlook: 4 Important Trends That Affect Future Jobs

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Worried about your job in the current climate?

Instead of worrying, having an insight to what the future may hold for your industry may help alleviate stress on job security and more importantly – help you better prepare for future changes.

Since most CFA candidates are interested in an investment management career, our data-driven guide summarizes the latest asset management outlook published by top consulting firms, focusing on future trends and potential impact on jobs. 

This Asset Management sector outlook guide starts with a quick look at the current state of the industry, before moving on to understanding the 4 key trends that are transforming the asset management sector, and how they may affect current and future jobs. 

Let’s dive in!


Asset Management Outlook: How’s The Sector Doing?

In 2019, the total asset under management (AuM) grew by 15% to $89 trillion globally. This is mainly driven by strong market performance and net new asset flows from retail investor demand

global asset management AuM growth BCG

When broken down by region, we can see that developed regions performed slightly better:

global asset management AuM growth geographic split region BCG
RegionsCommentary
North AmericaWorld’s largest asset management region.

AuM increased by 19%, adding $6.7 trillion in value.This growth is mainly attributable to quantitative easing, strong consumer spending, and a historically low unemployment rate.
Europe​Also recorded strong AuM growth, increasing by 13% to $22.8 trillion.

UK is Europe’s largest market with 27% market share, still grew 13%to $6.1 trillion in 2019 despite Brexit concerns.

Institutional segment (79% of UK market) is the main driver of growth.

Similarly, France grew to $3.5 trillion AuM with institutional segment leading the growth.

Germany’s story is slightly different, whereby its AuM grew 15% to $3.1 trillion, driven by both institutional and retail client segments. 
Japan & AustraliaBoth countries have collectively grown 12% to $6.1 trillion AuM, mainly due to strong market performance.
Asia (excl. Japan
​& Australia)
Assets in other Asia Pacific countries grew slower at 11% to $11.2 trillion.

This growth rate is heavily influenced by China – the second-largest asset management market in the world – whereby its AuM is estimated to have grown 10% in 2019 to $7.3 trillion.

Retail segment accounts for 60% of China’s AuM, which recorded a strong growth of 14% in 2019. The pace of growth in China is likely to accelerate due to regulatory amendments, increased openness toward foreign players, rising wealth and innovation.

South Korea’s AuM grew 12% to $1.1 trillion, mostly due to institutional segment growth.In contrast, Hong Kong’s AuM grew 14% to $1.0 trillion, mainly driven by retail segment. 
Latin AmericaLatin America’s AuM grew 11% to $1.9 trillion, with Brazil holding 61% of the region’s AuM.Brazil’s 8% AuM growth to $1.16 trillion is mostly driven by retail investors, with high investment in fixed income and the strong performance of this asset class.
Middle East & AfricaMiddle East is the largest market in this region with $1.2 trillion AuM. Its 11% AuM growth is mainly driven by strong market performance and higher oil prices.

OK, that’s a good start, I hear you say.

​So, what are the key trends for the future of asset management?


1) Asset Managers Need To Increase Operational Efficiency

Despite strong AuM growth in 2019, the global asset management industry experienced a slight drop in profitability, with an average operating profit of 34% of net revenues, vs. 35% in 2018. 

Global asset manager profitability margin BCG

In essence, this is largely due to cost-cutting initiatives were insufficient to offset the ongoing pressures on fees:

  • Short term cost reduction via organizational restructuring, staff reductions, and office location rationalization seem to have limited benefits;
  • regulatory compliance costs are likely to remain high;
  • the cost of growing distribution networks and new product development will rise in search for growth;
  • asset managers’ fee compression is likely to continue amid the ongoing push for greater transparency and comparability from investors as well as scrutiny from policymakers and regulators.

The cost issue remains a problem for asset managers, in particular the fixed expense of people cost remains high. To survive, asset managers need to balance short-term savings at the expense of longer term goals.

While it is tempting to start cutting short-term discretionary investments – especially those in technology and innovation and – these are the type of projects that would likely bring a step-change improvement in cost structure and future competitive advantage.

Hence, asset managers need to transform their business model to increase operational efficiency. There are various ways to do this, with examples ranging from outsourcing, offshoring, technology-enabled transformation by standardizing and digitizing end-to-end system, automation and blockchain.

Interestingly, a study by Casey Quirk (a Deloitte business) on 95 investment managers in North America, Europe and Asia Pacific found that only 25% firms surveyed are able to both grow profits and margins simultaneously. 

2018 performance intelligence casey quirk mclagan technology spend asset managers

These successful firms commonly have:

  • a higher focus on in-demand investment strategies, which enables them to realize premium fees and better margins;
  • a higher and accelerating spend on technology as a % of net revenue, that supports multiple functions which leads to increased productivity throughout the firm;
  • higher revenue per (full time) employee;

So it seems that profitable growth is achievable, but certainly not easy! Successful firms that achieve this are more adept at rightsizing their operations using technology and outsourcing noncore functions.

As firms transform their operations, risk management grows in importance too. This is because the further the departure from the old way of doing things, often the greater the need for new policies, procedures, and controls to manage both external risks (such as cybersecurity) and internal risks (such as having the right talent).

In Deloitte’s 2019 Global Risk Management survey: cyber security, regulatory issues and operational risks are the top 3 risks asset managers are concerned about in the next 2 years.

So what does the move to greater operational efficiency mean for asset management jobs?

1) There may be a slight headcount reduction in the industry the next few years, but those that remain are on average more talented or productive.

2) The nature of the job is likely to change, with greater integration of technology to help streamline operations. Needless to say, jobs that mainly involve tasks that can be automated such as trade settlement, certain accounting and generic administration are at risk.

3) Some roles may be outsourced if firms choose to focus on their core investment functions. So these jobs are not ‘lost’ per se, but their employers change.

4) Risk managers familiar with cyber security, regulatory compliance, operational and market risk are sought after.

5) The business transformation initiative requires a cross-functional team to deliver: e.g. corporate development / strategy, technology, risk management and operations. External technology vendors and management consultants may also be hired to help execute these changes. 

6) Mergers & acquisition (M&A) activities are expected to continue, as asset management firms use it to bolt on new capabilities in search for revenue growth, look for targeted scale opportunities or divest subscale product lines.


2) Winning Through A Better Customer Experience

asset management distribution customer experience

An asset manager can win and retain business in 3 primary ways: performance, cost and client experience. 

Traditionally, performance and cost-based business models have dominated the industry. Although these models remain relevant, there are natural limits to them: only a few managers can sustain outperformance and costs can only go so far as zero.

In the next wave of competition, asset managers would need to further differentiate themselves by creating world-class customer experiences. Compared to the performance and cost-based business models, the only limits to innovating on customer value are creativity and the ability to execute. 

With consumers around the globe purchasing more online than ever before, they now expect the same seamless, personalized digital user experience from investment managers.

To that end, asset managers are creating data-driven business intelligence in sales and marketing to help the entire organization develop a deeper understanding of client needs. These customer insights are also incorporated in the product development process, to better enable personalization of portfolios. All these help improve customer loyalty, enable cross selling of value-added services and create an overall better value proposition for clients.

 How does the increasing digitization in asset management affect jobs?

1) Technology will become mission critical not only to drive operational efficiency (see section #1), but also drive customer engagement, build deep customer insights data, simplify regulatory and tax reporting. Most global asset managers will soon have a chief digital officer (CDO) to oversee the huge business digital transformation.

​2) The sales and marketing process (distribution) will be more efficient. Sales and marketing staff can adapt and up-skill by being familiar with data analytics, and increasingly focus on their creativity and communication skills which is still core to this client-centric business.


3) Passives & Select Alternatives Are Winners

Since 2003, alternative and passive assets have grown considerably faster in the lead-up to 2020, to become more significant parts of portfolios.

Alternative Investments asset under management AUM revenue growth BCG

Alternatives delivered 13% AuM growth in 2019. This asset class has grown from less than 10% of the total market AuM in 2003 to 16% in 2019. It has become the largest revenue pool across products and is likely to capture a 49% share of global revenues by 2024. 

​The key driver of this growth is investor demand for increased performance, uncorrelated returns, illiquidity premiums, and other nontraditional return profiles, particularly as institutions across the globe face the challenge of a widening gap between assets and liabilities.

That said, not all alternative assets are created equal. Private markets – including private equity, real estate, infrastructure, and private debt – have grown assets at an annual rate of 9% since 2008, and they currently represent 66% of AuM and 60% of revenues in alternatives.

Hedge funds, by contrast, have seen their asset growth decline as overall returns over the past decade have trailed the S&P, although capital still flows disproportionately into the larger funds (AuM > $5 billion) as investors prioritize reputation and track record. 

Passive Investments asset under management AUM revenue growth

Meanwhile, passive investments overall grew faster than any other product category – mainly driven by equity and fixed income ETFs growth – with total AuM rising by 28% in 2019. Although the passive products market growth is expected to continue the next 5 years, revenue will remain at a ~2% CAGR due to the already depressed pricing.

The increased share of passive investments is driven by both institutional and retail investors’ demands. The separation between alpha and beta will accelerate as investors increase their investment allocation to passive products in search of low fees and broad beta market exposure.

So how does the growth in alternative and passive assets affect asset management jobs?

1) While there is generally a reluctance by firms to change Portfolio Managers (PMs) for fear of triggering huge outflows, PMs cannot afford to be complacent. The growth of passive investments, artificial intelligence and computer-driven investment styles are headwinds to watch out for.

2) While passive investments are rising in popularity, this doesn’t mean active is “out” though. While active core products are declining in market share and revenues, active specialty products (e.g. sectors, small/mid caps, emerging markets, high yield, convertibles) is still expected to hold its market share, although it continues to experience price pressure in the future.

3) Hiring opportunities in alternative investments – especially private equity, infrastructure, private debt and real estate – is expected to increase in the next 5 years.


4) ESG Investing Is Set to Grow (Fast)

Asset managers’ efforts to incorporate customer insights into product development have paid dividends. In the mutual fund and ETF categories, products focusing on sustainability, market volatility, and megatrends (thematic approaches e.g. urbanization, health care, technology disruptions) have been launched. These resonated more with investor goals and emotions compared to previous classification systems such as large cap value. 

In particular, sustainable investing has experienced a dramatic growth in asset management, driven by the increasing financial relevance of ESG (environmental, social and governance) factors, better ESG data, growing investor demand, and – in some markets – growing regulatory pressure.

Global ESG Sustainable Fund flows geographic split Morningstar

Global inflows into sustainable funds were up 72% in the second quarter of 2020, buoyed by the broad market recovery from the first-quarter coronavirus pandemic market sell-off. 

The disruption caused by COVID-19 has accelerated the sector’s growth as investors look for sustainable business models that can withstand market shocks.

In fact, many of these sustainable funds have also outperformed their benchmark indices over the last year and even longer, despite the COVID-19 pandemic.

Global ESG Sustainable Fund assets geographic passive active split Morningstar

After falling 12% over the first quarter to US$ 846 billion, assets in sustainable funds rebounded by 25% in the Q2 2020 and reached an all-time high of US$ 1,061 billion at the end of June 2020, while assets in the overall fund universe recovered by 13%.

European institutional investors have led this demand, but interest among US and Asian institutions and global retail investors is starting to accelerate.

In Europe, rising investor demand drove net flows into sustainable funds, pushing assets in Europe to a record US$ 870 billion. Regulatory developments in the European Union such as the creation of a standard ESG taxonomy and ESG-specific benchmarks is likely to further drive the growth of ESG investments.

In response to this trend, many asset managers have already started building climate science expertise by boosting their data, research and analytics capabilities on ESG topics and explicitly integrating it into their investment process. 

For active managers that have suffered from the shift to passive funds (see previous section #3), the fast growing ESG segment is a positive development as it is active money that comes with higher fees and solid investor demand.

That said, although majority of sustainable funds are still actively managed, there is also growing retail investor demand favoring passive sustainable funds.

According to MorningStar research, Europe remains the largest market for sustainable passive funds, accounting for more than 75% of global assets, but the US is catching up at 20%, up from 13% three years ago.

What does the projected growth in ESG investing mean for jobs?

Sustainable investing has created 2 types of new roles within asset management: 

1) a pure stewardship/governance role which offers an alternate route into the asset management industry for those that come from a non-investment, but more policymaking or natural sciences background.

2) an experienced investment/research role which focuses on ESG issues at a sector level, making recommendations across asset classes and articulate what ESG considerations the team should take. For existing experienced investment professionals with strong interest in responsible investments, this offers a route to shift to a more ESG-centric role within the firm.

For those interested in upgrading your knowledge in ESG and climate change matters, do check out these relevant  global qualifications which currently can be done remotely: 

Certificate in ESG Investing by CFA Institute, and
– Sustainability & Climate Risk (SCR) Certification by GARP


So, What Have We Learned?

asset management outlook adapting technological changes

The asset management sector is undergoing a huge transformation to reinvent itself in the face of fee compression, mounting cost pressure and fierce competition. 

Although technology is a central piece of this change, it doesn’t mean that coders, data scientists and engineers are the most valuable resources in the firm. While these technical skills are important to asset managers’ future, delivering the right outcome from technology will also require ‘creatives’ and people with ‘softer’ skills to motivate, manage and organize complex cross-functional teams in the future. 

The industry will be more digitized and efficient in the future, with a strong focus on building a better customer value proposition. To overcome these challenges, asset managers need to create a diverse talent pool, an inclusive culture and incentives that align with their stakeholders to deliver. Those open to embracing these changes and work with new technology should stand in good stead. 


What do you think of these upcoming changes? How do these trends affect your current career planning? Would be great to hear your comments below!

Meanwhile, here are some related articles that may be of interest:

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