Article

2020 investment management outlook

Crossing boundaries for profitable growth

​Seeking growth in an increasingly dynamic and complex industry landscape, investment management firms may need to leave comfort zones behind to explore new or different avenues next year.

2020: Crossing boundaries

THE changes facing many investment management firms are significant. Internally, long-standing operating models may need transformation to keep up with the competition, and digital-enabled customization is becoming a client expectation. Externally, firms may discover finding investors in new demographic segments or geographies is the most effective path to asset growth. Investors are adjusting their portfolio allocations in search of total return. In the retail market, this adjustment includes an expanding eye toward alternative investments. Consequently, many boards of directors of public firms with investment management capabilities are looking for new leadership they believe are better suited to deliver results in an increasingly dynamic and complex industry landscape. CEO turnover has been rising recently, with at least 37 US and European investment managers changing CEOs from 2017 to August 2019.

In 2020, many investment management firms are highly motivated to cross boundaries in search of profitable growth. Crossing boundaries often means leaving the comfort zone and performing new activities or doing standard activities in dramatically new ways. Success can be found crossing boundaries with purpose: by modernizing business operations and by upgrading technology infrastructure to reimagine growth, operational efficiencies, and client experiences. All these changes are intended to delight investors with revitalized capabilities.

A quick glance at the asset growth in the investment management industry over the past nine years shows steady growth—a sign of health and stability. However, the details seem to tell a more complicated story. The mix of investments has changed dramatically over the past 10 years. Passive funds are now the largest portion of the total US fund assets, as asset growth has followed performance. Passive funds have outperformed active funds on average, with the exception of PE, which has outperformed and grown assets steadily over the past nine years (figure 1), even with regular PE fund liquidations. These shifts coincide with an interesting global economic backdrop. While the US economy continues its record expansion, major countries in Europe may already be in recession, and China’s growth slowdown is likely to continue.2 A Brexit deal adds to the confusion, with investment managers executing their contingency plans. European regulators and investment hubs in Luxembourg, Dublin, Frankfurt, and Paris also continue to work on a smooth Brexit transition for investment managers.

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