Money management organizations that think outside the style box will inherit the earth. At least, that's the gospel according to Greenwich Associates, the Greenwich, Conn.-based institutional financial services consulting firm.
"For money managers, product innovation will be critical to grow and expand," said Rodger Smith, a managing director, shortly after Greenwich's third annual Competitive Challenges conference at Half Moon Bay, Calif. Increasingly, "organizations are going to have to hone product development skills to migrate where the markets are headed," he said.
Greenwich executives predict that non-traditional products will account for a quarter of money manager revenues within five years, up from 10% today. Those new products include hedge funds and other absolute-return strategies that are already fairly well established, as well as newer offerings such as 130/30 strategies and newly combined or packaged offerings such as portable alpha and liability-driven investments.
Other innovations will follow from the accelerating shift from defined benefit plans to defined contribution plans, with even healthy corporations beginning to freeze their traditional plans this year. Target-dated retirement funds have been one response to that trend. There's also "an enormous amount of work under way right now" on developing outcome-oriented products for the defined contribution marketplace that can deliver "a steady income stream as long as you live," said Chris McNickle, managing director.
With DC gatekeepers becoming increasingly influential in deciding which products are offered to plan participants, money managers will have to become more sophisticated in how they market their wares to that growing sector.