At this stage it is evident to everyone that we have entered another cycle for financial markets and the worldwide economy, which it will be difficult to resolve as rapidly as it may have done in the past. On the bright side there is a lot of uninvested liquidity and with this new scenario saving rates will grow and markets will offer opportunities for investors, says Furio Pietribiasi, CEO of Mediolanum International Funds.
It is going to be a critical test for investment teams and their investment processes in terms of their ability to adapt quickly and generate value for their investors with high inflation, restrictive monetary policies with rising interest rates, a looming recession in the months to come and a war which is far from a resolution.
This new cycle will reboot the momentum of structural trends that have characterised the industry for last number of years. Pressure on revenues and margins will be the highest since GFC due to weakness across equity and fixed income strategies and a risk off environment where investors this time have left the market with material redemptions in both active and passive solutions.
Amid this market pressure, sales and distribution remain the most challenging for an industry which can no longer benefit from the tailwinds as result of the appreciation of assets under management due to market repricing, competition continues to be forceful, and quality of performance is critical to retain assets and investors.
The current environment will be particularly favourable for the sub-advisory model not only in terms of cost, but also in terms of performance and access to talent, adapting quickly to the new market conditions by diversifying or changing to different investment strategies and investment processes.
Recent data further reinforces our view. According to a June research paper by InstiHub Analytics -- sub-advised fund assets in Europe are on course to record an annualised growth rate of 10.4 percent and reach €3.2 trillion by 2030. We believe this growing trend can lead to more efficient products overall offering to asset managers and distributors more sustainable business through the different market cycles.
For all this, we predict that sub-advisory assets will continue to grow, primarily due to an increased focus on fee compression and the need for sponsors to outsource specific investment strategies to the best specialists which can navigate the worse and unique market conditions.
In this way, asset managers can maintain better margins while taking on more responsibility over investment strategies, as it enables them to change a fund manager if performances do not meet expectations.
And with an eye still set on the future, we also believe that all these ongoing pressures will lead to more consolidation in the industry. But these M&A's will also give rise to individuals and teams who are not comfortable with the new structure they find themselves in to move on to set up their own business.
In other words, we expect to see new boutique asset managers, which will find their space despite the competitive distribution landscape due to their propensity to outperform the broader market primarily due to an alignment of interest .
All of this is to say that distribution, which until recently has not always featured as the most important in the context of the future of asset management, will quickly become an important topic and one that is front of mind for all firms in the industry. While those that are unable to adapt will lag, those willing to evolve and innovate will have better chances to survive.
