LONDON -- Peter Pan said, "I won't grow up." Unfortunately, money managers don't have that choice.
Since the 1960s, scores of American money managers have put up a shingle and opened for business, luring in billions of dollars of assets on the strength of their investment records, but often with little corporate strategy.
But the world is swiftly changing. The money management firm of the future will have to be a far more carefully managed entity to compete successfully in global markets, according to "Tomorrow's Leading Investment Managers," a recent report issued by PricewaterhouseCoopers and the Economist Intelligence Unit.
"The entrepreneurial nature of investment management has changed to institutionalization," Jack Miller, vice president of business development for General Motors Investment Management Co., New York, said in an interview.
The study found that managers will not be able to look to past practices for guidance, nor is there a single formula for success.
Money managers will tend to be either "manufacturers" of products or "integrators" that package and sell products through various channels, the study said.
"Companies can no longer be all things to all people. Polarization is forcing those caught in the middle to strategize and determine one, clear direction," Simon Jeffreys, a partner and global leader of PWC's investment management practice, London, said in a release.
Manufacturers will tend to be specialists, although in some cases they will be tied to integrators, the study said. There will be small manufacturers, relying on alliances for distribution and outsourcing non-core functions. Large manufacturers, by contrast, will focus on growth through alliances, acquisitions, organic growth and development of a wide range of products.
Integrators, in general, will have large global brands and often will be non-financial institutions, the study said. The report envisions both regional integrators, with well-focussed products, and global integrators, which will have to maintain consistent brands in all regions while meeting the needs of individual markets. Global integrators also will have to meet a full range of client needs, from check-writing to estate planning.
What's more, superior investment performance no longer will be the most important issue in selling money management products. Rather, it will be one of a host of issues, the report predicted.
In an interview, Mr. Jeffreys said picking managers solely on the basis of their performance is like buying a car based on its pickup. "Now, I don't buy a car because it's the fastest to get to 60 miles per hour," he said. Rather, he picks a car because of its functionality, reliability, and other important features, including its price.
And, as in the automotive industry, building strong brand recognition and price differentiation will be important.
The study cites French insurer AXA's attempts to develop global recognition. The Paris-based giant plans to spend $160 million between 1998 and 2000 on marketing, including TV and print ads, and sponsorships of athletic events.
The upshot is that marketing --long a supporting player to the portfolio management side of the business -- will take on greater importance, especially as the market shifts toward retail and defined contribution plan investors.
Creating a money management firm will require visionary leadership. Companies may have to look outside the investment management industry to find executive leadership, Mr. Jeffreys said.
Senior managers will have to pull together all aspects of the business, the study said.
In addition, managers will need to focus on career development, avoiding high turnover of personnel. Firms will need to employ longer-term compensation incentives based on risk-adjusted performance measures, the study said.
Use of new technologies, such as the Internet, will be critical in meeting client needs. Managers said the Internet is changing the way they reach both institutional and individual investors.
Different strategies will apply in different markets. Europe is poised to become the next major growth area for money managers, the report said, with between $7 trillion and $13 trillion projected to flow into European equity markets by 2010. That's staggering, given that Europe's current equity capitalization is about $3.5 trillion.
The influence of economic and monetary union and the recognition that state pay-as-you-go schemes must be replaced with funded systems are creating new opportunities.
But the barriers are substantial, the report noted. Europe still is dominated by a handful of large universal banks, and tax policies vary country to country, it noted.
A study conducted last year by Computer Sciences Corp., which is based in El Segundo, Calif., and the ISMA Centre for Education & Research in the Securities Markets, Reading, England, said it will take five to seven years for many institutional restraints to disappear within Europe.