(May 30 – 18:00 ET) – A report to be released Thursday by Merrill Lynch’s financial institutions investment banking group (www.ml.com) and BARRA Strategic Consulting Group (www.barra.com) says that the investment management business is in the middle of a revolution that will require “radical rethinking of business strategy”.
The report suggests that “the investment management industry is in a period of rapid change that will cause the most significant shift in business practices in perhaps 30 years”. It says that high returns and investor openness to fund management has made the industry an easy one to thrive in, but with investors empowered by technology and returns likely reverting to more normal levels the business is getting much tougher.
Investment managers are facing clients who demand the best products, including performance, consistency, transparency and predictability. They are also facing employee retention issues. It suggests that the managers that focus on customer service rather than pushing product will gain the advantage and that firms will have to enter alliances and utilize outsourcing to maximize their potential.
“Those who succeed, regardless of size or specialty, will share a common set of capabilities that define what we call a Complete Firm,” said John Casey, chairman of BARRA RogersCasey, Inc. and head of BARRA Strategic Consulting Group. “Complete Firms have an appropriate balance of investment manufacturing, channel management, and general business acumen.”
“Technology is driving instantaneous information dissemination and discovery, fundamentally changing the investment management industry,” said Gregory Fleming, head of Merrill’s U.S. Financial Institutions Group. “Those management teams that aggressively move to harness technology, deliver quality product and services to clients, and retain top talent will be the winners going forward.”
The report’s authors expect that these increased demands will also lead to the concentration of assets at the best firms, although not necessarily consolidation between firms. Growth must not come at the expense of quality, they suggest.
-James Langton