Firms are trying to grow share using new products, technologies, business models, pricing strategies and via acquisitions.
Pricing is a clear example of where firms are trying to attract clients and access new markets. For example, Fidelity recently launched zero-expense ratio mutual funds, and Vanguard added more than 1,500 ETFs to its no-transaction-fee platform.
McKinsey refers to these growth-generating techniques as a “Great Game,” an allusion to the geopolitical competition between global great powers, regional powers and smaller states for influence in central Asia and the Middle East during the 19th century.
In such an environment, scale has become a more influential element in the selection of an asset manager, according to McKinsey, as “institutional clients are increasingly adhering to a credo of ‘fewer but more strategic relationships,’” while smaller firms are both reducing the number of relationships with asset managers and increasingly outsourcing investment management to an outsourced chief investment officer marketplace.
Thus, McKinsey believes that there will be increasing levels of consolidation among smaller asset managers who cannot keep up with the pace of change within the industry. There might still be room for smaller, innovative insurgent firms who operate within niches or can form alliances with larger firms.
To be successful, asset managers need “to clearly define their role in the ecosystem, to pick their spots (that is, where they compete) in a way that clearly aligns with their strengths, to build strategic alliances in areas where they choose not to compete, to back up their choices with deliberate resource allocation, and to create an operating model that delivers sustainable and scalable economics.”