State Street Asset Management survey - Big changes and risks

• 70% of asset managers interviewed said they are having to rethink their business strategy around demand for multi-asset strategies
• 64% say that heightened risk and compliance demands threaten to divert resources from the critical business areas
• 96% of asset managers say they are under pressure to reduce costs
• 77% say they now offer clients more transparency on risk and return compared to a year ago
• 61% say clients are demanding a more personalized approach to help them understand their risks compared to a year ago
• 72% of asset managers say their conversations with clients has evolved to focus more heavily on risk compared to a year ago

The above bullets are just a few of the highlights in the latest State Street survey of the asset management industry. This is an industry that may not have lost its way but is certainly thinking about a new course. Cost pressures are present. Prices are going down and the fixed cost of managing risk and compliance are going up. The scale necessary to be a successful manager is rising so the small guy may not have a chance for success. This is no different than many industries as economies of scale start to kick-in and costs rise. The AUM break-even for success is higher. The manager in the "garage" trying to build a better investment process is going to just be the stuff of folklore. 

What is a point of hope for the medium sized firms is the idea that clients are demanding a more personalized approach to money management and a sense of customization for  premium pricing. Economies of scale are great and the one size liquid alts approach plays to the strengths of larger money managers, but personalized service means small and high touch. The owner operator who takes the time to know his clients and provide services that are tailored to those needs will be successful. 

I have always thought of hedge funds as a mechanisms to provide unique money management services to a core group of selected clients that have a close relationship with the manager. Transparency is through the manager knowing the client and the client knowing the manager. Transparency of integrity and knowledge of the goals and objectives of both manager and client is a core risk management skill.

The State Street survey points out what may be the biggest change in the asset management - the new focus on objective oriented asset management. Providing management that meets the goals of each client.