GLOBAL - The majority of asset managers around the world believe their industry will become more polarised, with large players rising to positions of dominance, a report by Create-Research reveals.
Create-Research chief executive Amin Rajan said: "While opinion on the shape of the new landscape is divided, one point is clear: a business model which cannot absorb further market shocks will be untenable, since further turbulence cannot be ruled out."
The report also found polarisation would take place within one of three possible scenarios: commoditisation, segmentation, or vibrancy.
Thirty-four per cent of respondents expected their industry to become commoditised as a result of increased regulation and risk aversion on the part of investors seeking capital protection.
According to Rajan, investors tend to go cautious and to invest in what they understand. This can lead to a standardization of products and processes that are consistent with economies of scale, favouring the larger managers.
Forty-nine per cent of respondents anticipated a segmented industry characterised by consolidation, separate centres that focus different client segments, alliances across front, middle and back offices which allow a greater concentration of capability and a changed fee structure which delivers a closer alignment of interest.
Rajan said under this scenario demand and supply forces were likely to produce an industry where manufacturing and distribution of investment products were increasingly separated and "industry players would focus on what they know how to do best".
Only a minority of those surveyed (17%) expected their industry to become more vibrant with a closer alignment of interests between clients and asset managers. Under this scenario, the report highlighted innovation which adds value to clients would be critical.
Rajan concluded investors inertia would likely work against the commoditisation scenario and asset managers' mediocre innovation track record would work against the vibrant industry scenario.
"Therefore segmentation is the most likely outcome. It envisages an industry where best of breed producers, distributors and service providers come together," he added.
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