“We are bullish on the long-term prospects of success when it comes to ESG integration and see shifting demographics and the impending intergenerational wealth transfer as causes for optimism,” said Justina Deveikyte, associate director, European institutional research at Cerulli. She added that investors under age 40 prefer strategies that incorporate ESG and many investment platforms are recording an increasing number of searches for ESG solutions.
In terms of dominance in selected markets, the report pointed out that in the U.S. last year, only four of the 20 largest fund managers were able to increase their assets. This was due to factors, including poor market conditions, net outflows and the commoditization of products forcing more net rationalization, the report said. Big players such as BlackRock and Vanguard are experimenting with free models, which are intended to both help drive flows and strengthen relationships with key distribution partners, the report noted.
The report suggests that asset managers can protect their revenue growth by adapting in order to limit the impact of rising costs and fee compression. Many are considering disruptive revenue and compensation models, cutting costs and focusing on broad value-add services that tap different revenue streams. Product innovation is another important area and firms should investigate ways to improve operational efficiencies through better use of technology, the report said.
In some European countries, distributors are reducing the number of funds on their shelves, focusing on the best performers and value for money. This, the report said, could further squeeze asset managers’ revenues. In Asia, regulation—in the form of enhanced disclosures and new fee models—has been introduced to reduce the cost of mutual funds for end investors.
And sophisticated investors in the U.S. are increasingly focusing on fees, incentive alignment, and manager selection. The country’s mutual funds and hedge funds have been hit hardest by price compression, whereas advisory fees and private equity fees have mostly held steady.