How are asset managers evolving their growth strategies?

This year Northern Trust launched a survey of global asset managers, seeking to gain insights into how their strategies are evolving. It covered 300 Chief Executive Officers, Chief Investment Officers, Directors of Operations and senior executives in similar-level roles at asset managers around the world from asset management firms with assets under management of $500bn and below. The survey was conducted by appointment over the telephone.

The objective was to gain insights into how strategies have changed, with particular on the past two years, given the pressures on operating models and changes our industry has undergone, from remote working and staffing challenges to the rise of ESG investing.

Here are some of the key findings arising from the study: Driving Growth in Asset Management: The Next Chapter.

Increased focus on outsourcing

While outsourcing is not a new phenomenon, particularly since the Covid-19 pandemic began asset managers have continuously reassessed the need to keep many functions in-house. Remote work environments, staffing challenges and turnover, and technology limitations have driven them to consider areas that have not previously been outsourced, such as the front office.

They recognise that many functions can be done more efficiently by specialised providers who have expertise and reach. For 60% of respondents, this new working model has increased the likelihood of outsourcing. Reasoning behind this decision is clear: Outsourced services can help reduce operational costs, bolster operations in a remote working environment, improve resiliency and enhance efficiency in key areas.

Outsourced service providers can also boost technological and governance capabilities; this may be why technology limitations (38%) and cybersecurity concerns (44%) were important factors driving a potential move to outsourcing. Through careful consideration of their needs and emerging technologies, firms can compete in an increasingly agile and dynamic marketplace.

Respondents are looking at outsourcing across a wide range of capabilities. From back office operations (44%) to trading (23%), asset managers are looking at functions across their whole office for ways to help boost their efficiency and compete in a crowded marketplace.

Roles of new technologies, data management and evolving asset classes

In 2022’s competitive investment landscape, successful buy-side asset managers need to constantly stay ahead of the curve, both in terms of their investment strategies and their support systems. Survey respondents identified the need to source and identify investment analytics as their greatest front office challenge (54%), followed by the ability to source environmental, social and governance (ESG)/socially responsible investing (SRI) ratings (51%).

Managers continue to be challenged in managing their data, from accuracy to analysis. Without access to the right data in the right formats, they may struggle to identify investment opportunities, meet reporting requirements, and grow their businesses.

Additionally, supporting growth in crypto/digital assets was selected by 11% of respondents. Given how new this asset class is, this is a significant result. Indeed, it suggests that demand for crypto/digital assets could grow rapidly in the coming years, similar to the growth in alternative asset investing that occurred in the last ten years. Managers will want to work with partners that can support their investment strategies now and into the future.

Firms must constantly look for new and innovative ways to achieve their priorities and grow their businesses. This means adopting cutting-edge technologies and refining existing operating models to address emerging challenges and capitalise on new market opportunities.

However, it is noteworthy that 37% of respondents are also looking at outsourcing to meet their goals in this area also. Outsourcing can help drive growth and success in today’s market. It can also help to build efficiencies and lower costs as investment firms focus on building their future operating models.

Driving Growth in Asset Management: The Next Chapter

The next chapter in driving growth will mean anticipating change and evolving for the future.  The most successful asset managers will focus their resources on pre- and post-investment decision activities such as data science modelling, research, portfolio management and analysis.

These firms may revaluate their operating models to identify areas where they might be more efficient by outsourcing non-core functions, such as capital markets activity, middle office, data management and data storage, to providers who specialise in these capabilities.

These are highlights of insights gleamed from the study. Click here to download the whitepaper and learn more about the strategies that asset managers are considering in order to drive continued growth for their businesses.

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