Asset managers and wholesale banks are under increasing investor pressure to accelerate growth while managing down costs. Yet both are facing falling margins and a market environment that is disappointing relative to expectations.
Asset managers need to respond to the commoditization of market /benchmark returns caused by passive, and the knock-on impact of this shift in market structure on sell-side revenues demands that wholesale banks, in turn, find cheaper ways to serve their investor client base and seek growth elsewhere.
The race is on to launch new propositions for clients and gain share by addressing emerging client needs and combat disruption from new entrants. But this must be accompanied by an aggressive focus on the bottom line. While costs can be high, more possibilities now exist to restructure consistently challenged businesses.
Management in both industries need to decide their strategy in China as markets open up. The growing pool of externally managed AUM is an opportunity for foreign asset managers, and over the long term this will drive an expansion of the investor wallet for the sell-side.
In the battle to adapt and leverage new technologies, established firms with the capital to reinvest as well as new entrants are seeking opportunities to quickly outcompete slow-moving incumbents. Winners will leverage their data advantage in providing new client solutions. Investment is ramping up in both industries. Both incremental and 'greenfield' builds should be considered.
Fundamental shifts in market structure and client behaviour mean that firms with the weakest starting point are increasingly disadvantaged. They will have to balance competing demands to defend core markets with the need to follow the money and find long-term growth. The cost of catching up is increasing.