Cost control takes backseat to client relationships, new products: IM Survey

More than four out of five investment managers (IMs) want to shift their product strategies within the next two years, as cost control takes a back seat to client relationships, a new industry survey by Northern Trust has revealed.

While cost control has long been a foremost consideration, this year’s survey showed a higher priority among investment managers to improve the quality, accuracy and number of products on offer – both to enhance the investor experience and to grow their distribution.

“Asset managers need to optimise the products they offer their clients, and the majority of our respondents (72%) see enhancing quality and accuracy as a top strategic priority for the next two years, Northern Trust wrote in its The Next Chapter in Driving Growth in Asset Management 2024 white paper.

Further, more than two-thirds (70%) of asset managers view improving the investor experience as a top strategic objective, which the white paper authors believe “further [emphasises] a client-centric approach.”

Notably, the results represent a marked shift from manager priorities of the 2022 survey, when just 45% of managers identified enhancing quality and accuracy as the top priority, behind efficiency and cost controls.

This year’s survey shows these priorities have flipped, with cost control rated as a key priority for 46% of respondents. Only 5% want to reduce their product set.

“Managers who over the last few years have focused on removing cost from their operating models have recalibrated their focus toward their investors,” said Northern Trust’s Caroline Higgins, head of global fund services (GFS) APAC.

“In the Australian market especially, managers are tweaking their strategies to service an ageing demographic. As the demographics of investors change, they must be flexible with product offerings to meet the demand.”

As a result, around 83% of respondents say they plan to change their product strategy in the next two years.

Moreover, investment managers appear to have shifted their attention to previously underrepresented asset classes like infrastructure (with 71% planning to increase their allocations), digital assets (with 54% planning an increase), and real estate (at 49%).

“However, moving into these new asset classes can increase the complexity for managers, and many are seeking a ‘holistic’ operating model they can utilise across asset classes to maximise their efficiency. This efficiency also translates to a better investor experience,” the white paper read.

A redoubled tech, data focus

Despite the evolving focus, cost control remains a core priority for many, with 60% of investment managers eyeing automation and increased technology investment as a means of improving cost efficiency, and ensuring the right products are delivered to clients.

As noted by the Northern Trust, a recurring theme throughout the survey was the heightened significance of data and analytics.

A key focus for asset managers is to nurture existing client relationships by offering high-quality products. “[A] big part of that comes down to having accurate data, consistently,” Northern Trust wrote.

As part of a now widely adopted ‘right product, right fit’ strategy, investment managers are “honing their distribution strategies and deploying technology to aid in decision-making and analytics”, particularly to support their shift into more complex asset classes like infrastructure, digital assets, and real estate.

Yet, data remains an area of significant complexity for managers. The vast majority of respondents (83%) said they are looking to outsource to augment their data management capabilities.

“Data management presents a significant challenge for global asset managers, and a clear strategy to enhance data analytics and generate actionable insights is a must.”

In addressing their data challenges, 57% of respondents said they planned to engage with a specialised data service provider, while 45% would seek a custodian’s outsourced data solutions.

“This underscores the increasingly prevalent approach of partnering with service providers to advance data management capabilities in response to evolving product strategies,” Northern Trust wrote.

Investment firms are also looking to new technologies, such as AI, generative AI and cloud adoption, to help address their data challenges.

As part of the Q1 2024 survey, Northern Trust surveyed 300 C-level leaders, directors of operations and senior executives and a small cohort of board members from across APAC, EMEA and North America regions, from asset management firms with assets under management (AUM) of $500bn and below.