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Asset Management Trends 2022
By Julia Hobart, Joshua Zwick, Dennis Zhang, and Kamil Kaczmarski
 // . //  Insights // Asset Management Trends 2022
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This article was first published on December 17, 2021.



We were hoping for a more “normal” 2021, but in practice it has looked more like
a form of “equilibrium.” That said, the asset management industry has been
relatively lucky — with some adjustments (and notably less travel) we have
carried on our business pretty effectively. Climate, and ESG more broadly,
remain top of everyone’s agenda, but under the bonnet the pace of change is
massive, with major advances in data, investment process integration and climate
analytics. However, the big “known unknown” is what happens to the macro
backdrop (and when) and the consequences for markets…We offer some thoughts on
this below, together with our other predictions for 2022.


10 IDEAS IN ASSET MANAGEMENT FOR 2022


1. MACRO TAILWINDS FADE, TAKING THE AIR OUT OF MANAGERS’ SAILS.

Conditions that have driven markets to hit record highs are poised to revert as
rates march higher, targeted fiscal stimulus is retracted, and central banks
rein in asset purchases. This will create a reckoning for asset managers who
have developed bloat in their businesses, become overly reliant on embedded beta
driving inflows despite mediocre alpha, or who have been highly dependent on
cheap leverage to prop up deal-making volumes and fund returns. It will also
reshape product demand patterns benefitting strategies, asset classes and
geographies (e.g., value, inflation-resilient real assets, inflation-sensitive
securities and commodity baskets, select emerging market countries) that haven’t
attracted as much attention or have been relatively out of favor during the
buoyant market conditions.




2. TRADITIONAL MANAGERS FIND SOME WAY…ANY WAY INTO ALTS AND PRIVATE MARKETS.

Traditional players who want to expand into alternatives and private markets but
find the valuations of potential acquisitions too high or are concerned about
integration risks, will expand organically into the semi-liquid space of
traditional asset classes (e.g., pre-IPO space in equities, or CLO/syndicated
loans in fixed income). Others will bite the bullet and pay whatever it takes to
secure alts and private market capabilities, be that a whole firm or high-priced
individuals with the right experience, track record and connections. The
pressure to find profitable growth opportunities has built up to the point where
the risk of not having these capabilities will become greater than the risk of
overpaying or messy integrations.




3. HITTING THE “GAS”— TOKENIZATION DRIVES THE NEXT PHASE OF PRIVATE MARKET
DEMOCRATIZATION.

THE DEMOCRATIZATION OF PRIVATE ASSETS HAS GATHERED PACE IN RECENT YEARS AS
MANAGERS TARGET A NEW CLASS OF INVESTORS WITH RETAIL-FRIENDLY STRUCTURES AND AS
TECHNOLOGY PLATFORMS REDUCE THE ADMINISTRATIVE BURDEN OF DISTRIBUTING AND
INVESTING IN PRIVATE MARKET PRODUCTS. AS THE BACK-END INFRASTRUCTURE IS BUILT TO
SUPPORT TOKENIZATION OF PRIVATE MARKET ASSETS, IT WILL USHER IN THE NEXT WAVE OF
INVESTOR ACCESS THROUGH REDUCING COSTS, ENHANCING SECONDARY MARKET LIQUIDITY,
AND ENABLING FRACTIONAL ACCESS. THIS WILL OPEN NEW OPPORTUNITIES IN PRIVATE
MARKETS FOR ASSET MANAGERS THAT CAN BUILD COMPELLING PRODUCTS, AND THE
SUPPORTING SYSTEMS, PROCESSES AND CONTROLS THAT ARE REQUIRED TO TAKE ADVANTAGE
OF DISTRIBUTED LEDGER TECHNOLOGY.




4. THE RACE TO SECURE LONG-TERM CAPITAL WILL INTENSIFY.

Driven by the industry’s desire for more stable sources of capital and buoyed by
investors’ willingness to sacrifice liquidity for access to top-tier alternative
managers, there will be a wave of new long-term or permanent capital funds that
facilitate investment in illiquid assets. Consistent with this trend, asset
managers — including the usual suspects (private equity/private debt firms), as
well as banks with alternative investment arms and even traditional managers,
especially those with a fixed income focus or insurance investment heritage —
will compete for insurance business as part of a strategy to lock in long-term
funding sources. This will further accelerate the prominent role that asset
managers are playing in transforming the insurance sector into a conduit for
funneling capital into high yield/return strategies.




5. REGULATORY ENVIRONMENT “HOTTING UP,” PARTICULARLY AROUND GREENWASHING.

Regulators are increasingly holding managers to account across many areas, but
most noticeably around greenwashing where it’s gaining momentum across both
sides of the Atlantic. Regulation will be become more prescriptive, going as far
as introducing a “nutrition label” for ESG products, holding asset managers
accountable for delivering their ESG investment promise and value for money.




6. FROM ESG PRODUCTS TO ESG EXPERIENCES.

To date, most focus has been on developing and launching ESG products to satisfy
the burgeoning demand for all things labeled ESG. This is going to change as
clients recognize that their needs are not being fully met through simply buying
undifferentiated products. While all products will need to satisfy basic
financial needs, leading asset managers will take a “customer first” approach
and design holistic experiences — where the product design is just one aspect —
to satisfy higher order needs like fulfilling purpose, creating impact, building
trust and sense of community, and even triggering joy.




7. VIRTUAL BECOMES REALITY.

Based on previous research prior to the pandemic, we estimated that a fully
virtual asset manager could operate with a ~40% lower cost base. The experience
over the last two years has highlighted that such a model may be closer to
reality than to science fiction. While most firms will settle on a hybrid
working model, some trailblazers will seriously consider abandoning the office
and in-person contact, relentlessly digitize, and where it isn’t core to value
delivery, outsource every aspect of their business. Employees will self-select
into these firms given their unique value proposition as will clients who value
the prospect of lower fees and improved net performance over a higher touch
experience.




8. ASSET MANAGERS SUPERCHARGE DISTRIBUTION.

The way of selling through financial intermediaries hasn’t changed much for
decades; it remains a product-led sales process with basic performance
illustrations and product explanations. This will change as asset managers take
matters into their own hands and design digital advisory and reporting tools to
help distributors elevate the end-client experience. It will transform client
interactions from one of selling products to one of selling stories — stories
that clients can connect with, emotionally and intellectually. This will
supercharge distribution in ways that relying on traditional financial
performance, risk profile and holdings-based conversations just can’t match.




9. CHINA ONSHORE BUILD EFFORT INTENSIFIES.

Amid regulatory intervention in the market and geo-political uncertainties, 2021
has seen the establishment and majority stake conversion of mutual fund
companies, as well as announcements of more Sino-foreign wealth management joint
ventures (an asset management entity, despite the name). As global players
become fully operational, the focus will shift from obtaining the licenses to
competing for business. More advanced global managers in China will begin to
develop differentiated local strategies (e.g., ESG, REITs, cross-border, etc.),
adapt to local distribution dynamics (e.g., use of WeChat, etc.), where the
local requirement may constantly push the boundary of group-wide operating model
principles.




10. TRANSFORMATIONS, TURNAROUNDS, AND TRANSITIONS — M&A WILL RESHAPE THE
INDUSTRY IN MULTIPLE WAYS.

Major industry players will consider mega deals and pursue M&A more actively as
the needs of and benefits to scale become too big to ignore. This includes
improved distribution reach; keeping up in the arms race for spending on
advanced technology, data, and quantitative talent; gaining access to rapidly
growing developing markets; and enhancing operating leverage. At the same time,
private equity firms will selectively take over mature, bloated businesses (mid-
and large-scale) and apply private equity value creation approaches to drive
necessary changes that incumbent management teams have resisted. In other cases,
they will accelerate their pace of activity in taking partial ownership
positions in successful mid-sized firms (especially alts managers) where
founders/executives are looking to “take some chips off the table” and partially
monetize their ownership positions.



We hope these ideas give you some fodder to spark an interesting discussion. Do
let us know if you would like to discuss anything in more detail.  


 * Financial Services
 * Wealth and Asset Management

Authors
 * Julia Hobart Partner
 * Joshua Zwick Partner
 * Dennis Zhang Principal
 * Kamil Kaczmarski Partner

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