Emerging Trends in Asset Management
Investment management is undergoing major changes and offering great opportunities for those entering the job market. The incessant development of digital technology and information analysis, the qualitative and quantitative changes in life expectance, the recent history and dynamics of financial markets, tighter regulation and the need for higher transparency have all forced the asset management industry to rethink its business model completely.
Web-based systems enable the transfer of valuable information along the whole production and distribution process of financial securities: from the final customer to the fund manager in terms of financial needs that need to be addressed, and from the fund manager to the client, in order to verify the level of satisfaction of those needs and the indicators of risk pertaining to that investment.
The population's life expectancy is growing faster than the postponement of the retirement age, thus increasing the so-called longevity risk, i.e. the risk of not having provided for sufficient resources for life as a pensioner. The acknowledgment of longevity risk is spreading also in those countries with pay-as-you-go social security systems that have yet to develop a strong market for private pension funds. Thus there is a growing flow of resources given to the asset management industry with the aim of satisfying long-term needs of financial security in old age.
Tempestuous financial markets and the unconventional monetary tools adopted by the ECB make investment in either bonds or stocks no longer attractive to achieve the level of returns needed by clients.
In such an environment, customer satisfaction can be obtained by investing with non-traditional tools in untapped markets, and by a kind of dynamic management capable of real-time asset reallocation according to an ordered holistic management approach.
Lastly, new EU regulations are bringing stronger competition to the investment industry (with the so-called UCITS, Undertakings for Collective Investment in Transferable Securities, set of directives) and favoring stronger attention to the coherence between investors' needs and the investment strategy being pursued (as posited by the Markets in Financial Instruments Directive –MiFID).
Optimizing production and distribution, increasing the effectiveness and efficiency of financial instruments are strategic imperatives that can no longer be avoided. Consequently, asset managers are seeking economies of scale and economies of scope that are conducive to competitive advantage. The former are reaped through highly standardized products (e.g. ETFs – Exchange-Traded Funds), the latter via highly customized products tailored on the basis of specific investor needs (e.g. investment strategies in the insurance industry).
Financial operators unable to achieve economies of scale and scope are bound to lose market share in favor of competitors that are able to specialize. In the new environment, skills in asset management hitherto considered the province of specialists have become paramount factors for success in professional employment in the financial industry: risk management and knowledge of institutional investors and pension funds are now mandatory skills for all those working in finance, not only for bankers and insurers. Keep it in mind!