GLOBAL - The use of fiduciary overlays will differentiate successful institutional asset managers from their competitors over the next three years, a new report has predicted.
The study by Create Research, commissioned by Citigroup and Principal Global Investors, said although the credit crisis had passed, a "thick fog of uncertainty" still presided over the investment landscape.
It said success in the coming years would require asset managers to exercise a "duty of care" by developing a fiduciary overlay which delivered five things: consistent returns, a deep talent pool, exceptional service, a value-for-money fee structure and a state of the art infrastructure.
Author of the study and Create chief executive officer Armin Rajan said this overlay should seek a three-way financial and non-financial alignment between asset managers and their clients; asset managers and their professionals; and their professionals and clients.
Global Investors Europe CEO Nick Lyster (pictured) added: "It is apparent that the winning business model continues to be the one that puts clients first. In response, asset managers are targeting improvements which seek to position them as trusted advisers to their clients.
"A fiduciary overlay that overcomes behavioural biases, offers meritocratic incentives in which gains and pains are shared and develops common investment beliefs and time horizons will be critical. This model can already be seen in multi-boutique structures, which it is anticipated, will become the dominant organisational structure."
"Currently, 50% of asset houses operate as integrated producers, added Rajan.
"According to the study, the number will decline and multi-boutiques will become the dominant operating model among medium and large asset managers over the course of the next 10 years.
"Currently independent boutiques represent 7% and integrated boutiques represent 28% of the market. Creating a small company mindset in a large company environment helps to foster principles of meritocracy, personal accountability and leadership. Being more nimble and focussed, boutiques will be better placed to meet client needs."
The report also predicted asset inflows would remain subdued over the next three years, with just a third of assets representing new money, with the majority of it coming from national pension funds and sovereign wealth funds.
The remainder will come from defined contribution schemes, wholesale packages and outsourced insurance assets, it said.
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