Power in the The investment management industry is shifting towards fund holders from fund managers, driven by several major economic, social and political trends.
Collectively, they are irresistible forces meeting a moving object: the traditional structure of the asset management industry. Below are five key trends impacting the investment management industry.
A new group of underserved customers
In the United States, women are expected to control up to $30 trillion in assets over the next three to five years, and millennials $20 trillion by 2030. New policymakers will expect that the industry reflects a better gender balance and is more accessible.
Women and millennials tend to invest differently than the previous generation of older men. Millennials are both more risk averse and more socially conscious when selecting investments. Additionally, because they came of age during the financial crisis, millennials have a negative perception of some of the traditionally dominant financial services companies. The changing values of the investor base help explain the popularity of ESG investing.
Additionally, dispatchers are becoming far less tolerant and unwilling to turn a blind eye to toxic cultures of sexual harassment and discrimination, which have been tolerated for years among some predominantly male-led investment managers. Our view is that as the culture and preferences of dispatchers change, their investment criteria and tolerance for bad behavior also change.
VCs tout our industry as investors in cutting-edge technology, but many of us are using the same infrastructure tools we’ve been using for over 20 years.
Millennials are “inherently distrustful of authority, so the traditional financial advisor model won’t work for them,” said Suzanne Ley, formerly head of financial institutions at Westpac. “They demand full transparency in all aspects of their lives, so hidden/opaque fee structures will not be tolerated. They also have a high propensity to change jobs more frequently than previous generations, so the portability of financial assets will be very important in the future,” she added.
Geopolitical risk leads to capital flight
Political volatility is not good for savers and allocators because it tends to destroy asset values. The new cold war between the United States and China is partly ideological, but it is also largely about technological dominance and cybersecurity.
The new Cold War has only increased the flow of capital to regions of relative stability. Fear of totalitarian regimes or anarchy in China, Russia, the Middle East and South America causes millions of well-educated and wealthy citizens to seek protection for themselves and their nest eggs. We are seeing the first net outflows of private capital from emerging markets due to “risk aversion” sentiment and the risk of rising rates in the US and Europe. Even though the economic outlook in the United States is negative and the response to COVID-19 inadequate, the country remains relatively stable. Along with places like Switzerland, Singapore, and the United Kingdom, the United States remains an attractive haven.
Pension funds and wealth management funds have a great opportunity to grow their geographical footprint. While the traditional markets of Europe, the United States and Japan are saturated, India, for example, offers the ideal environment for the growth of a new wealth management industry. The combination of a strong middle and upper middle class, a well-educated professional class, a free market economy and expanding disposable wealth will drive demand for wealth management products in both institutional than retail.