Four interconnected trends will transform the global asset management sector in coming years.
In Kenya, these trends will influence the growth of a sector that is still in its early stages. Importantly, the deepening of financial services and improving financial literacy will spur growth in the asset management sector. It is therefore a good time to reflect on the global trends influencing asset management, and how they manifest locally.
- Global asset management is now a buyers’ market. Fees are under pressure and individual retirement accounts and defined contribution pension plans are democratising investing.
- The asset management sector lags behind the rest of the financial services industry in terms of digital technology. The latest craze for Bitcoin-derived investments highlights the extent to which digital assets can outpace (at least in the short term), the growth of traditional asset classes.
- Asset managers are being called upon to “fund the future” through avenues such as infrastructure finance or real estate investment, with less certainty about long-term performance.
- Investors increasingly want solutions for specific needs. Outcomes matter to investors, now more than ever, and “social” outcomes matter increasingly among millennial investors.
Never mind the latest performance of the Dow, the S&P 500 or the NASDAQ; there is still uncertainty with regard to long-term interest rates and the “real” value of assets as well as the returns that investors can expect.
These trends were identified in PwC’s latest analysis of the sector published in the global report, Asset and Wealth Management Revolution: Embracing Exponential Change. It follows up on the Asset Management 2020 report from two years ago.
The latest report distils those 2020 predictions into four distinct trends that will shape the asset management sector in the years to come.
A buyers’ market
Today’s customers are more sophisticated than they were 10-15 years ago. Asset managers have to demonstrate that they can beat any returns that customers can earn on their own.
Today’s customers, including individual investors, pension funds and other institutional investors, are looking at an asset manager’s market profile, their credit rating... you name it. Reputation and stature used to help asset managers attract customers but now, customers have more options and information. The investor class is keen to know exactly where their money is going.
Even as their margins come under pressure, asset managers are also under pressure to invest in talent and develop innovative products and technologies. The only option is to manage costs and invest wisely in talent and technology that will generate returns or greater cost savings.
Some asset managers are using mobile platforms to reach a wider pool of customers. The platforms generally work, powered by telecommunications companies and the “know your customer” information available through M-PESA transaction histories, for example.
Perhaps it was the way that these mobile investment platforms were presented to the market, or perhaps it is the small size of the individual investor market or the wide variety of other options for investing, or the asset manager had larger brand and reputation issues, or the influence of our larger savings culture, but the success of asset managers’ mobile platforms in terms of market penetration has been limited so far.
Some asset managers have tried to manage costs by relying on their parent company for personnel and systems for controls but have ended up spending a lot of time on operational issues instead of reaping the benefits of improved efficiency. Others like Britam are undergoing a comprehensive digital transformation that is starting to bear fruit.
Funding the future
Asset managers in Kenya recently ventured into the real estate investment trusts (REITs). On the back of that investment vehicle are assets. The asset manager will have bought a share in a collection of properties.
Perhaps the quality of assets that they bought was not good, and questionable decisions were made about location, for example. This will affect the performance of the REIT and the return for investors, as well as the reputation of the asset manager. At the bottom, this issue of quality speaks to the governance structures that should influence the people who make these decisions. But those governance structures may not be appropriate or adequate enough.
A final thought on asset management and outcomes-focused investing is that our millennial generation will force asset managers to reimagine the possible.
Millennials tend to be wary of “wealth managers” and prefer convenience and personal control (i.e., mobile apps) and investment options that are aligned to their lifestyles, social consciences and goals.
This is a cause for optimism, for asset managers. As the author William Gibson famously said, “The future is already here, it’s just not evenly distributed.”
Kang’e Saiti is an assurance partner at PwC Kenya and an asset management sector specialist.