June 27, 2023 | Stamford, CT — With fee levels and profit margins under pressure, asset management firms face the challenge of reining in costs while fostering growth. To achieve these seemingly contradictory goals, asset managers will need to upgrade their operating models, utilizing innovative technology and outsourcing to lower expenses and enhance client service while also delivering strong investment returns.

“Current platforms may help asset managers navigate the tension between growth and cost-cutting, but you can’t execute strategies built for 2025 on practices designed for the environment of 2018,” says Stephen Bruel, Senior Analyst at Coalition Greenwich Market Structure & Technology and author of The Evolving Asset Management Landscape: Only the Fittest Will Thrive.

The asset management industry faces an array of headwinds, including a volatile investment market characterized by rapidly rising interest rates, a growing list of regulations that are increasing business complexity and imposing new costs, and fierce competition for talent. The biggest challenge to asset management profitability has been the seemingly inexorable erosion of management fees driven by a boom in low-cost passive investment strategies. 

In this difficult operating environment, asset management firms participating in a new global study say they are pursuing dual strategic priorities: growing assets under management while lowering their cost base. 

Three-quarters of mangers cite AUM growth as their top priority, through either the launch of new products and strategies or increasing market share in existing products. Approximately 45% of the managers name cutting costs and increasing efficiency/productivity as a top strategic priority. Among smaller managers—those with less than $10 billion in AUM—cost cutting is a seen as a bigger priority than new products and growth. 

Coalition Greenwich conducted interviews with 151 senior asset management professionals in North America, Europe and Asia-Pacific with assets under management up to $150 billion. Respondents included leaders from operations, trading, portfolio management, and other key lines of business. The study was created in partnership with Northern Trust.

Optimizing Operational Models with Innovation and Outsourcing
One possibility for asset managers to manage the conundrum of growth vs. cost-cuts is to implement an operating model that spans pre-trade, trade and post-trade functions. To make such a model successful, managers must focus on activities that add demonstrable value to either growth or performance. The rest are processes that may be appropriate for outsourcing. 

The asset managers participating in the study are considering outsourcing to address issues such as the high cost of maintaining in-house capabilities, technology limitations and staffing challenges. Asset managers view organizational strength and stability as the most important consideration in evaluating an outsourcing provider.

“While there are many unknowns in the current environment, one item asset managers control is their operating model,” says Stephen Bruel. “Rethinking and rebuilding with flexibility, growth and cost in mind can help bridge the gap between where firms currently stand and where they need to be.”

The Evolving Asset Management Landscape: Only the Fittest Will Thrive identifies the top challenges, strategic priorities and growth expectations among participating asset managers in North America, Europe and Asia-Pacific. It examines the primary strategies used by these managers to reduce costs and analyzes the role that outsourcing is playing in managers’ efforts to optimize their operating models.