Three years ago, when senior partners at BARRA Strategic Consulting Group wrote a paper on how the investment management industry needed to change to become more efficient, no one wanted to listen because the stock market was doing so well, recalled John Casey, one of the partners. Now those partners — who have since formed Casey, Quirk & Acito, Darien, Conn. — have updated their thoughts in a new paper.
"We were asking money managers then, what should keep them up at night. Now, a lot aren't sleeping," said Mr. Casey.
The paper examines the key drivers of the industry, the principles that senior leaders must understand to manage the challenges of the industry and what types of models these organizations are likely to adopt.
The main drivers, according to the paper, are the extended duration of investors' discontent; evolving intermediaries (brokers transforming themselves into advisers); continued high mobility of talent; vulnerable companies; and activist enthusiasm.
Whether individuals and institutions remain fully invested, there is likely to be an increased demand for advice and greater interest in solutions that provide capital preservation, the new paper predicts.
The authors also point to a significant divergence between the strong and the weak companies in the investment management industry. "We see that some are quite vulnerable in a business sense; their clients and their employees are very worried because of their poor performance. Some will leave the business or be sold. Others will be stuck in the environment they were in before," Mr. Casey said.
What you do about it is the next issue, he noted. "We continue to believe that investment quality is critical to success in business and has become more important today compared to three or five years ago. There is greater appreciation for performance. It's now seen as aligning expectations with your client."