Multi-Asset Products Could Be Key for Asset Managers, Says State Street

Asset managers are looking to launch new products, particularly multi-asset ones, in order to grow in the near future, as 76% of respondents in a State Street survey said that changing client demands are causing a fundamental shift in their overall business strategy.

The survey, conducted by FT Remark (a research arm of the Financial Times Group) on behalf of State Street, surveyed 300 asset managers dispersed equally across Asia Pacific, Europe and North America. In terms of size, 60% have less than $50 billion in AUM but at least $5 billion. And most respondents, 78%, manage both institutional and retail assets.

Jane Mancini, State Street’s head of asset manager sector solutions, says that many investors, particularly retail ones, are skittish about the markets after having gone through the financial crisis, and while most want diversification, they don’t have the knowledge to do so themselves. Therefore, they rely on their asset managers to do it for them.

As a result, of this client-driven demand, 67% of survey respondents said that multi-asset solutions, such as target-date funds, will contribute the most growth to their business over the next three years.

“If you’re big in the 401(k) space, this makes great sense,” says Mancini. “401(k) participants don’t want to do their own asset allocation.”

However, Mancini notes that there’s “a big disconnect” between what managers see as a growth product and the fact that 74% of respondents think most asset managers are not equipped to thrive when offering these multi-asset solutions. The most common challenge in doing so, according to 63% of managers, is building the internal expertise for these products, while managing risk and performance is also a common challenge.

In addition to these new products, 42% of respondents said they see growth opportunities in new investor segments, including the younger demographic groups who have different requirements from the baby boomer generation. Close to one-third of managers plan to expand their distribution channels to reach these groups, such as online, though many managers will not go down that route, as 19% plan to decrease their distribution channels, and 49% aren’t planning any change.

In terms of where to grow their business, most managers, 72%, see the greatest opportunity over the next three years in existing markets rather than expanding into new ones.

“A lot of that sort of skews towards the size [of the funds surveyed], but also the opportunity,” says Mancini. “A lot of asset managers…see opportunities in their existing markets because the clients needs are changing, and they can adapt that to their existing markets and just file new products and meet the client needs…It’s so efficient, it’s so effective, it makes so much sense for them to just continue in the markets where they are and bring these new products and solutions to them.”

While managers want to develop new products for their existing markets and/or increase their market share for existing products, 47% also plan to grow their business by entering a new market, with 60% of these eyeing APAC. Yet 85% said that regulation is a key challenge when expanding into new markets, especially for North American managers, of which 96% identified regulation as a key challenge.

Going forward, the asset managers likely to fare the best will be the ones who are willing to move away from the more traditional routes and look at new ways to do business. “The more forward-thinking firms are already on the move—investing in new talent, adopting advanced technology, and developing the flexible operating models required to thrive in a fast-changing world,” says the report.