Speaking in Sydney yesterday, Aberdeen head of global emerging markets Devan Kaloo said asset management is under intense pressure on fees, technology and regulation.
Mr Kaloo made the comments in reference to Aberdeen’s planned merger with UK firm Standard Life, first announced in March 2017, which would put the merged entity in the top 15 asset managers globally.
The rationale behind the merger is based on three pressures currently confronting asset managers, he said.
First, the rise of passive and quantitative investing is driving down fees for asset managers as well as diverting flows away from them, Mr Kaloo said.
“That has meant that there are real revenue headwinds for a lot of the traditional funds management firms,” he said.
Second, there is a “great need” for asset management firms to invest in technology – something they have been “less focused on” to date.
“At one level I’m talking about technology in terms of investing – that is, using big data and artificial intelligence to make better investments,” Mr Kaloo said.
However, the more significant technological pressure is on the distribution side of asset management, he said.
“There is a real requirement to be able to invest in new distribution channels – to be able to connect directly with the customer as opposed to third party channels,” Mr Kaloo said.
“And that has to be done via a technology platform. Consumers are increasingly not wanting to deal with a middle man because they want to cut the costs out and go directly to the manufacturers and providers of the product and that will continue.”
Finally, asset managers are under regulatory pressures in all global jurisdictions, Mr Kaloo said.
“Regulators have got it into their heads that you want larger asset managers rather than smaller asset managers,” he said.
Part of the preference for bigger firms, he said, is that regulators think they would be better placed to withstand financial cycles and put aside capital.
“That pressure on the regulatory side is forcing the consolidation in asset management companies,” Mr Kaloo said.
“And that is the headwind that is encouraging the likes of Aberdeen and Standard Life to get together. We expect that to continue pretty much across the board.
“We expect to see fewer and fewer asset managers going forward because there is such pressure.”
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