Worldwide, the performance of global stock markets is the greatest challenge to the investment management industry during the next three years, according to more than seven out of 10 investment managers polled. This surpassed both evolving client needs and regulatory and compliance issues (both at 65%), according to a global investment management survey released today by PricewaterhouseCoopers Investment Management Industry Group.
These were followed by:
- cost containment (63%)
- competitive pressure (59%)
- investor trust (46%)
- globalization (30%)
- tax/reg barriers to cross-border distribution (30%).
“The relative lack of concern for investor trust is not necessarily surprising given the timing of the survey prior to allegations of wrongdoing in the US fund industry,” said Chip Voneiff, a partner atPricewaterhouseCoopers LLP and leader of the firm’s Investment ManagementIndustry Group, North America . “The funds industry has long enjoyed a sterling reputation, but it got a wakeup call that trust is a precious asset that needs to be protected or restored if lost,” said Voneiff. “It is likely that rebuilding trust would be a far greater concern to US fund managers today than just two months ago.”
In fact, the overwhelming impetus for change among US investment managers is regulatory and legal issues (83%), ahead of both market performance and evolving client needs (both at 67%). As US firms, more than others, direct resources to compliance, this may reduce competitiveness and delay efforts to reduce costs through offshore outsourcing.
Additional change is also likely to come from a wave of fund consolidation and outsourcing to further reduce costs, coupled with an intense shift in focus from global expansion to niche market segmentation. This will drive fundamental changes in the relationships among funds, distributors and service providers.
Driving this trend, in part, is enhanced channel management as a top priority for 83% of US asset managers, a strategy that supports tighter integration with fewer distributors and service suppliers and achieves higher profit potential. Overall, 50% of the aggregate expect up to a 30% reduction among funds over the next five years, driven largely by consolidation to further reduce costs and operational inefficiencies. This, combined with an explosion in offshore outsourcing, will likely result in a significant reduction of investment management industry jobs in all but low-cost jurisdictions such as India.
“As these changes sweep the industry, asset managers will need to reassess how they are managing their business,” said Voneiff. “Assets under management has long been the industry yardstick, but it becomes less meaningful in a highly segmented, highly interdependent market where profitability is the main focus. Firms should be asking themselves if they are equipped and have the information they need to measure, aggregate and maximize profitability by product, partner and customer.”
The 2003 Global PricewaterhouseCoopers Investment Management Survey was conducted from May to September 2003. An online questionnaire was completed by more than 70 asset management organizations worldwide, representing assets totaling $6.6 trillion. To download the 2003 Global PricewaterhouseCoopers Investment Management Survey, visit http://www.pwc.com/imsurvey .