The global asset management industry will be grappling with financial market uncertainty and fragile investor confidence for a long time to come, and must become more open and transparent to win back investor confidence, a new report suggests.
The report, published by the Financial Centre Futures Program in Long Finance sponsored by Qatar Financial Centre Authority, says that the European sovereign debt and eurozone currency crisis are the biggest challenges facing the industry, as they continue to imperil the financial system, undermining confidence.
“This crisis will not be addressed by a set of immediate short-term palliative measures. The cure will take time; perhaps it will be a generation before certainty returns to the asset management sector that enables the industry to take a longer term and considered view of its growth,” it says, adding that the solution will take years rather than months.
In the meantime, the report says that the Asia Pacific region and the BRIC countries remain the key areas for sustained growth of asset management. Although this won’t necessarily represent a windfall. “Investment culture will take root in Asia, but not so fast as to create a honey pot any time soon,” it says.
For the industry overall, rebuilding trust and confidence is critical, it says. Some of that will come from more intensive regulation, but “the industry has to develop capabilities to deal with the loss of confidence” too, it says.
“To rebuild trust and confidence, asset managers should ensure that their investment management systems encompass transparency at all levels, including cost structures and competitive comparisons of cost structures, business processes and products,” it says. And, it suggests that these measures must become industry standards.
The report also predicts that the measures that asset managers take to address the industry’s “moral failings” will have “less resonance with investors than was anticipated until financial markets recover and asset managers deliver consistent and improved performance.”
Additionally, the report predicts that asset managers will refocus on their core competencies, discerning what they are good at and what they can outsource. “Where the aim was once cost control, the focus now is on operational excellence and business resilience,” it says.
The report also suggests that asset managers that remain part of a banking institution “will be hampered in their growth because of the bank brand association.” Instead, it sees multi-boutiques as the likely becoming the dominant operating model for medium and large asset managers.