The asset management trends for 2022 will be shaped in large by the recovery from COVID-19 and rising global conflict, affecting the economy, investment strategies, government and regulatory policy, as well as asset manager-client values.
The asset management industry is in a “growth period.”
As assets pour into ESG and cryptocurrency, and as new funds emerge and M&A activity remains active, there’s a lot of opportunity for asset managers. There will be headwinds with inflation and continued lower fees, but overall it’s a positive outlook.
Below are some of the trends to watch in asset management.
Inflation is rising at its fastest pace in 30 years. Conflict between Russia and Ukraine is only adding fuel to the fire that is inflation, as energy prices soar.
In any case, asset managers need good investments to offset high inflation.
Real estate, gold, and even cryptocurrency have been ways to hedge against inflation, advisors say. One of the arguments in favor of gold and cryptocurrencies is that they won’t be damaged by the eroding value of cash.
As for real estate, Alex Doll, a certified financial planner and president of Cleveland-based Anfield Wealth Management, shared his take:
“Real estate performs well because landlords and property owners see the values of their properties increase… Also landlords can somewhat easily pass-through rent increase.”
Also, consider a recent report from BlackRock that suggests the total returns of privately held property and infrastructure assets globally have beaten those of main stock and bond indices when inflation has exceeded 2.5%.
And here are some other assets that can help protect against inflation.
According to a Celent report, ESG assets are excepted to top $53 trillion by 2022. By the end of the 3rd quarter in 2021, there were 7,486 funds for ESG (a 51% increase), and that number is expected to grow.
Consider the demands of your current and potential clients. Nearly 8 in 10 millennial investors consider environmental, social, and governance as their top priority when considering investment opportunities. In fact, they see ESG as more important than the returns themselves.
In terms of client acquisition and retention, having ESG as part of your strategy makes sense.
Not only that, ESG funds have outperformed the S&P 500, showing that you can pursue profits and invest in a socially conscious manner.
Of course, be aware of greenwashing. Some companies will consider ESG a “bandwagon” to jump on and be ESG-friendly in name only. So, make sure to perform your due diligence when it comes to true ESG investments.
Despite its volatility, cryptocurrency is an increasingly important asset in people's portfolios.
Between 2021 and 2026, the global crypto asset management market is projected to triple in size, growing at a Compound Annual Growth Rate (CAGR) rate of 21.5%, from $0.4 billion in 2021 to a projected $1.2 billion.
Because of this growth, there will be demand for skilled asset managers who can manage crypto-assets for their clients. It's lucrative but complicated, hence the need for professional advice.
Check out his PwC blog post that goes further into the topic of crypto-currency and the growing demand for talent.
Cryptocurrency got arguably one of its biggest backers: The White House.
U.S. President Joe Biden recently signed an executive order that calls for federal agencies to analyze the impact of digital assets, including crypto, on financial stability and national security.
Investment experts largely agree this is a good move, as Bitcoin and cryptocurrency-related stocks jumped in value after the announcement.
In spite of the opportunities with ESG investing and crypto, asset managers' fees will be under tremendous pressure.
The downward pressure on fees shows no signs of stopping, and asset managers need to take action.
First, they have to cut costs. One place to start is operations. Asset managers can outsource their middle- and back-office work to third-party providers. In turn, they benefit from cost savings and timely, accurate reporting. This also frees up their team to focus on revenue-generating activity.
At a recent SEC Asset Management Advisory Committee (“AMAC”) meeting, SEC Chair Gary Gensler spoke and covered some of these topics:
SEC Commissioner Hester Peirce also spoke, in support of the AMAC’s Small Advisers and Small Funds Subcommittee final recommendations to:
Regulations must reflect reality and adapt with the times, and the topics discussed reflect changes (or improvements!) down the road.
Whatever the outcomes may be, be prepared for regulatory policy changes in the asset management industry.
Holding a majority of seats in the House, Democrats are considering a tax increase on the wealthiest American individuals and corporations.
Here are some of their proposals:
With these proposals in mind, it will influence the way asset managers run their business (i.e. assess cash flows, determine how much they need to pay for taxes, decide when to buy and sell assets)
While the COVID-19 pandemic is not over yet, life is returning to some degree of normalcy since the vaccine rollouts.
As a result, asset managers are returning to the office.
But don’t be mistaken; the way asset managers worked before the pandemic is over.
Commuting to and from the office Monday through Friday will be a hard sell to existing and prospective employees, especially when gas prices hit record highs.
Asset management firms that promote workplace flexibility will have an advantage over those that don’t. Employees and applicants with options will go where the grass is greener.
While employees will return to the office, it will be a more flexible, hybrid work environment for most firms. Employees have grown accustomed to this flexibility.
George Wilbanks, founder and executive recruiter of Wilbanks Partners, an executive recruitment firm, shared this take:
"The cat's out of the bag, and firms have to respond to it... The firms that don't [allow greater workplace flexibility] are really going to have a challenge on their hands."
To maintain long-term competitiveness, asset management firms need a proper tech stack. It means getting rid of older, less effective systems in favor of a cloud-based, all-in-one setup.
Use the financial technology to grow and scale your business: service more clients while expending minimal resources, spend more time gathering clients, and marketing your firm.
Also, use the technology to improve internal collaboration and workflows. Adopt more effective cloud-based technology in the form of a data warehouse, portfolio accounting system, trade order management system, compliance reporting system, CRM, etc.
Not to mention, asset management clients want instant access to their investment portfolios and easier communication with their asset advisor. They need an all-in-one platform for this.
At Empaxis, we help asset managers on their path to digital transformation.
Our TAMP1 platform lets asset advisors and their clients see all reports and data in one place in real time, pulling in data from any required sources. In the process, we help asset managers streamline processes by automating their workflows.
In the world of asset management and trends, there's never a dull moment.
ESG investing and cryptocurrency will continue gaining steam, and global assets under management will increase, but inflation and fee compression could slow things down.
In terms of regulation, some proposed changes can work in favor of asset management companies, but with regulation usually comes red tape, adding a few more hurdles in doing business.
And largely accelerated in the wake of COVID-19, the hybrid work model will be a permanent fixture, as employees demand flexibility, and they'll gladly leave a company that doesn't accommodate them.
With a hybrid work model, there comes a need for a solid IT infrastructure, one that is cloud-based, secure, and contributes to positive business outcomes, as well as better relations with clients.
There's opportunity ready for the picking, and those who are smart, patient, and proactive will win.