Asset Management –
Industry Outlook
EIJA HIETAVUO, Head of Investment Management Markets,
Reuters EMEA
Agenda: Industry trends and Outlook
• Overview of the Asset Management markets
• Biggest markets in AuM, Conventional Asset Management
• Biggest markets in AuM, Hedge funds
• The Asset Management industry
• Past and future of the AM industry
• Some general highlights on the AM market
• What is happening now in the AM Industry
• The AM industry in 2010: trends & visions
• What does this mean to Asset Managers in terms of Financial
Information Management?
Investment Management 2007
Overview of
the Asset Management markets
Biggest markets in AuM*
Conventional Asset Management**
> Major Markets concentrate
79% of the AuM growth
Major Markets concentrate 79% of the AuM
55 USD trillion in 2005
EUROPE
> Global AuM were 55 USD
trillion in 2005, 10% growth
from 2004 and 54% from
2002
10,992 bn
20%
NETH.
USA
26,489 bn
48%
UKI
1172
SWITZ
3%
923
4,061
7%
> We can estimate industry
CAGR of 6% from end 2005
through 2010 if current
economic trends remain
2%
GERM
FR
3055
1781
3%
JAPAN
6%
6,153 bn
11%
> Concentration of the
industry has grown in recent
years. AuM of world's largest
500
fund
managers
increased 13% in 2004 and
22% in 2003
Source: International Financial Services, London, Fund Management, City Business, 2005 data, fund management of conventional assets (does not include alternative
investments)
*AuM = Assets under management
**Conventional assets include pension, insurance and mutual funds
Investment Management 2007
Biggest markets in AuM*
Hedge funds
High Concentration on Geographical distribution of Hedge Funds AuM
USD 1,500 bn in 2006
> Hedge Fund industry AuM
totalled USD 1,500bn in
2006 up a third from 2005
and twice 2003
> Number of Hedge funds
raised 5% from 2005 to 2006
> While the USA remains
major location for hedge fund
managers,
Europe
has
doubled his share from 2002
to 2006 and Asia grew from
5% to 8% in the same period
USA
66%
EUROPE
24%
ASIA
8%
> New York and London are
the most important Hedge
Fund locations
> In Asia, Australia is the
most important location for
management of Asia-pacific
Hedge funds (1/4 of AuM),
followed by Japan with (1/5)
and Hong Kong with 14%
Source: International Financial Services, London, Hedge funds, City Business, 2006 data
Investment Management 2007
The Asset Management
industry past & future
Past and future of the AM industry
The Evolutionary path since the bubble burst in 2000*:
• Retail and Institutional markets have drifted apart
• Industry has professionalized
• World has extended to include newer markets, stimulating emergence of new
breed international players
• Looking forward on tomorrow’s IM world, to summarize:
• There will be growth but it will not be shared equally among players, markets or
products*
• The industry structure will gradually polarize, and generic asset managers will
cede market share to their differentiated brethren*
• Industry will open up to an even global level were cross border competition will
result in greater concentration of players*
• The universe of investable assets is growing, therefore giving opportunity to
fund managers to better diversify and search for performance*
• Intensification of the war for talent**
*Source: Will the goose keep laying golden eggs?, October 2006 – The eight annual survey on the profitability of European Asset management, McKinsey & Company
**Source: 2015: the radical redesign of the asset management chessboard, McKinsey & Company, 2007
Investment Management 2007
Some highlights on AM Market
• Key facts on the AM industry:
• Capital Markets have been a strong driver of AuM Growth globally
• Industry Profitability has improved significantly
• Household financial asset allocation to the Asset Management products
(funds) is expected to raise dramatically in the following years
• The major opportunities for the industry are derived from:
• The need from retail investors to have new asset management products
(funds) to fit their investment needs
• The demographic pressures and the state pension insufficiency to
cover cost of living that requires retirement private savings done via
asset management products (pension and other funds)
• The stunning emerging market wealth growth in some countries
(specially India, China, Gulf States, Brazil and CEE)
*Source: Setting Your Sights on a New Horizon, Roberts & Taglioni, January 2006, McKinsey & Company
Investment Management 2007
What is happening now in the AM Industry
• The Global Fund Manager Survey by Merrill Lynch in October 2007
• Fear of Slowdown in Global and European growth as a result of the Credit
Crisis
• The Asset “Allocators”:
• Continue to increase their preference for equities over bonds
• Prefer sovereign bonds over corporate bonds
• Choose large caps over small caps
• Adopt growth over value strategies
• Choose the technology, materials and industrials over the rest
• Investors have been increasing exposure to emerging markets
• JP Morgan 2007 Alternative Asset Survey (Nov 2007)
• Desire to diversify drives big push into alternative assets – more than EUR 1000
bn investment in next 2-4 years
• From Private Equity, Real estate– to Second wave Alternatives like Infrastructure
Assets, Commodities and Shipping, Timber and Clean Energy
*Source: The Global Fund Manager Survey, Merrill Lynch,, Investment Strategy, July 2007
Investment Management 2007
The AM industry in 2010 : Key trends
• Key trends that will increasingly shape the sources of industry growth
and profitability over the next few years:
• Move from accumulation to income and risk management
• Move from relative performance to outcome orientation
• Separation of Alpha and Beta
• Pension restructuring
• Institutionalization of retail sales
• Increasing role of marketing and client service
• Convergence and evolution of alternative investments
• Growing internationalization and diversification of assets
*Source: The Asset Management Industry in 2010, Bigger, sometimes better – and the best pulling away, McKinsey & Company 2006
Investment Management 2007
The AM industry in 2010 (II): Major characteristics
• The trends mentioned in previous slide will influence structure and
dynamics of the asset management industry
• By 2010 leading players will look very different than they do today in
terms of size, capabilities and products. 5 major differences will
characterize the industry and its leaders
• Driving scale to generate a winning edge: scale, multi-boutique and
focused asset players
• Different earnings profile for traditional asset managers: new products
• A shakeout – of sorts – in the alternative investment industry: more
focused business models, transparency and players’ concentration
• A more crowded and complicated industry landscape.
• A measured pace for mergers and acquisitions that will depend on the
Asset Manager profile and size, dominant model will be multi-boutique
*Source: The Asset Management Industry in 2010, Bigger, sometimes better – and the best pulling away, McKinsey and Company 2006
Investment Management 2007
Europe: What is Happening here?
Domestic niches under threat – focus on cross-border sales
• UCITS III
• 70% of European funds are UCITS, pa growth 20%
Demand for new distribution channels
• Retail banks vs. IFAs and insurance companies
Product development hot topic in 2008
• Extended powers with UCITS III
• Focus on alternative assets, LDI and complex investment strategies
Hedge Funds
• From institutional to Retail
Regulation
• MiFid, KYC/AML, UCITSIII
Pensions
• LDI driving shift from equities to bonds and other asset classes
• Cash flow matching approach to investment – using bonds to create a porfolio
which matches the expected liability ouflows
Socially and Environmentally Responsible Investment, Islamic Finance
Investment Management
What does all this mean to AM: Technology
• Architecture and Integration: improve infrastructure to support top-line
revenue growth
• Order Management and execution management systems
• Reference Data Management
• Derivatives Processing
• Legacy replacement/Extension
• Post-trade automation/workflow
• Portfolio Analytics
• Business continuity
• Broker Management technologies
• CRM systems
Investment Management 2007
What does all this mean to AM: Compliance
• Tactical Compliance
• Compliance with AML/KYC
Know your Customer & CRM
• Operational Risk Management
• Compliance with UCITS III
• Value at Risk
• Client reporting
• Compliance with MiFiD
• Trade reporting
Investment Management 2007
What does this mean to AM: Information Requirements?
Buy Side Intermediation
Retail Investors & High Net Worth Individuals
Plan Sponsors, Trustees
Pension Funds
State Funds
Corporate
Private Assets
Asset Allocation Decision
Asset Managers
Hedge Funds
Private Equity
Alternative
Lipper Funds
Fundamentals
Private Company
Commodity Pricing
Fundamental
News Feeds
M&A Multiples
Real time
Economic data
Tick Data
IPO & Deals
Derivatives
Credit
Real Estate
Corax
Real Time
Estimates
Economics
ICW
Estimates/Starmine
Global Filings
Investment Management 2007
M&A
Low Latency
Institutional Holdings
Economic data
Fundas/Estimates
People
Ecowin
REUTERS
An Indispensable Source of
Financial Information and News
in the Fast Moving AM industry
Our commitment is to give our
Customers a Valuable Edge