How Asset Managers Can Use Data To Identify Growth OpportunitiesGuest Post
With competition getting fiercer than ever, institutional asset managers are increasingly using data to identify new growth paths. During eVestment’s recent EI3 conference, Peter Laurelli, Global Head of Research and John Molesphini, Global Head of Strategic Engagement, presented several examples of how asset managers can “look within the numbers and the data” to find trends and opportunities to both grow assets and retain existing clients.
Increasing fee compression has impacted revenue at many firms, Molesphini noted, highlighting the need to “better understand the opportunities to win assets versus where you need to play defense. Keeping existing clients is a lot easier than winning new mandates, and that revenue funds the technological investments many of you are making to keep up with the changing landscape,” he said.
Where’s the growth?
Laurelli summarized research by eVestment that searched for non-cash universes with high growth and win rates and business success characteristics over the last three years. The results are shown below: nine are non-U.S. focused, seven are small cap equity focused, and seven are emerging market strategies. Only two are U.S. focused and both are fixed income-oriented.
“The top 25 fastest growing universes had inflows of $83 billion while the remainder had outflows of $177 billion,” Laurelli stated. “Universe by universe win rates within the top 25 were far greater than for products outside the top 25.”
Not only did the top 25 universes show strong growth characteristics over the last three years, “we extended the study back 12 years and it turned out that in every year after a period of high growth rates for these universes, the universes had favorable business characteristics compared to the rest,” he added.
As an example of how to identify emerging trends and rapidly growing product interest, Molesphini also walked through monthly growth in infrastructure strategy views, as shown by the bars in the chart below, along with inflows into infrastructure strategies.
“The behavior was there ahead of the flows,” he said, pointing to the alignment of political changes and investor interest. “Consultants are busy looking at developments that may impact clients and are finding ways to serve their clients. It’s important for asset managers to recognize areas where you have opportunities.
“Infrastructure is one specific example but we see this over and over again. It is critical to look for the story behind the data,” he said.
The rise of alternative investing
The increasing usage of alternative asset classes by investors has been particularly pronounced by U.S. public pension plans, Laurelli noted.
46% of all mandates awarded by U.S. public pension funds in 2017 went to private equity and private debt strategies, as per the exhibit below, and, “when you include hedge funds and real assets, the number is nearly 80%. This is an acceleration from what we saw in 2016 when about 35% went to private equity and private debt and just over 70% went to alternatives,” Laurelli said.
And, according to Laurelli, the trend will persist going forward. Based on the assumption that plans will reallocate assets to more closely align actual portfolios to target allocations, winners will be fixed income, real assets, hedge funds and multi-asset strategies while equites, both domestic and international, will likely see reductions in the future.
“Despite all the outflows we’ve seen from equity strategies in the last five years, despite all the mandates going to private markets and alternatives, equity portfolios at U.S. pension plans are still significantly overweight,” Laurelli noted. At the sub-asset class level, the data shows private equity, multi real asset strategies, and hedge funds to be the three areas most in line for increases while U.S. equity, international equity and global equity may experience the largest draw-downs.
In conclusion, Molesphini said that asset managers have an opportunity to set themselves apart and get ahead by challenging the status quo. “There’s a lot of changes happening in our industry. Smart firms can choose to be disrupters and early adopters. Markets are changing, but opportunity is knocking. It’s important to recognize and find where those opportunities are.”
Article by by Maria Simon, eVestment