EY’s latest global analysis on the future of the asset management sector suggests that firms will experience “potentially dramatic effects of profitability” on the back of the COVID-19 pandemic.
“Monetary stimuli will keep rates low for now, but higher inflation and an increase in rates cannot be ruled out. Financial markets, which diverged from the real economy during 2020, could see a correction or prolonged period of weak performance. As a result, asset managers are likely to see investors’ demands grow to be even more complex,” the report read.
“Institutional investors will seek a combination of capital preservation, high yields and strong ESG performance. Retail demand for tailored solutions and ESG investing will grow too, along with advice and education.
“Asset managers will be forced to accelerate diversification, using alternatives to push up returns while making greater use of lowcost options, such as factor investing and enhanced beta.”
EY predicted that a “pessimistic” scenario, which assumes a 15 per cent AUM growth over the next five years, would lead to a 7.3 per cent point reduction in average operation margins. This would mean that asset managers need to take a 10.3 per cent total costs over that period to maintain 2020 operating margin levels.
The report suggested that asset managers will be able to best respond to the hit by prioritising key areas including transforming their business model (“make strategic decisions about where to play and how to win and invest in the tech and operational infrastructure”), realign their business around the client, invest in digital transformation, explore new areas of growth and leverage inorganic opportunities.
It adds that while the economies will recover from the pandemic “the needs of the future will not be the same as the past” and asset managers must adapt “elevate the purpose” of the industry.
