Traditional long-only managers building up private markets capabilities should find room to compete with private markets specialists for the flood of institutional money now moving into private equity and credit, infrastructure and real estate, according to a Feb. 13 report by Coalition Greenwich, the Greenwich Associates business acquired in 2020 by S&P Global affiliate Crisil.
The report, titled "Top Trends in Asset Management for 2024," said institutional investors with whom Greenwich spoke "do not necessarily have a strong preference for specialist firms," leaving traditional managers with opportunities to work with the 30% to 40% of institutional investors looking to boost private markets allocations over the next three years.
While there's continued demand for large private markets managers with established brands and solid track records, "there's a reason for asset owners to be open to talking to firms that aren't specialists," said Todd Glickson, Coalition Greenwich's head of investment management-North America, in an interview.
Big asset owners, for the most part, are "discriminating purchasers," with good working relationships with those traditional, generalist managers — broad-based ties that can open the door for garnering fee reductions across a number of mandates, Glickson said.
Thirty percent of institutional asset owners with whom Greenwich spoke expect to add new private debt and private equity managers, plans that "should translate into opportunities for traditional asset management firms to establish or expand their footholds in private markets" in 2024, the report said.
Of course, solid performance and superior client service are necessary ingredients for those traditional managers to go head to head with more specialized firms.
"You don't get selected based on performance and fees. You get deselected," Glickson noted. Instead, it really gets down to the service model the institutional clients received, focused on areas such as customization, thought leadership and knowledge transfer, he said
Asset manager efforts to improve service quality, meanwhile, will be another key in separating winners from losers in 2024, the report said. And much of that progress will likely rest on managers' success in moving beyond experimentation with artificial intelligence to "use cases," the report said.
Artificial intelligence, together with other innovative tools, will give asset managers "unprecedented opportunities to lower costs, improve efficiencies, deepen institutional relationships and better serve clients" — offering one means of coping with the persistent pressure on fees weighing on money managers' margins, the report said.
Glickson said artificial intelligence, in and of itself, won't prove to be an antidote for what can be expected to be continued downward pressure on fees. Instead, "I think it needs to be a mosaic of things" managers will have to consider to bolster margins — such as spending as much time considering which of their products they should be culling as well as what new capabilities they should be introducing, he said.
Meanwhile, investments in AI aren't costless and "the jury's out" as to whether those investments will boost a manager's margins, he said.
