2020 investment management outlook

Article

2020 investment management outlook

Crossing boundaries for profitable growth

Authors: Doug Dannemiller (US) & Sean Collins (US)

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.

Key messages

  1. The pace of mergers and acquisitions (M&A) may pick up over the coming year as investment managers look beyond their core capabilities to achieve top-line growth and extend client service offerings.
  2. To expand into emerging customer segments, leading firms will likely try to resonate culturally with their new customers, deliver through current or newly developed technology, and meet the changing investment expectations, such as ESG (environmental, social, and governance) principles, of these new segments.
  3. Private equity (PE) firms have started adopting alternative data for sourcing deals and conducting due diligence, following hedge fund and long-only managers.
  4. Adopting and using insights from alternative data sets for managing and transforming portfolio companies can be a game changer for PE firms.
  5. In 2020, Deloitte expects leading investment management firms to cross the boundary from traditional cost-efficiency projects into a save-to-transform approach, increasing competitive advantage in the process.
PDF - 9.66mb

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 (figure 1). 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.

Read more on Deloitte Insights >

Contacts

Benjamin Collette
Partner – Financial Services Industry Leader
Tel : +352 45145 2809
bcollette@deloitte.lu

Vincent Gouverneur
Partner – EMEA Investment Management Leader
Tel : +352 45145 2451
vgouverneur@deloitte.lu

Simon Ramos
Partner – Investment Management Advisory & Consulting Leader
Tel : +352 45145 2702
siramos@deloitte.lu

Nicolas Hennebert
Partner – Investment Management Audit Leader
Tel : +352 45145 4911
nhennebert@deloitte.lu

Eric Centi
Partner – Investment Management Tax Leader
Tel : +352 45145 2162
ecenti@deloitte.lu

 
Did you find this useful?