The search for excess returns will continue to be a huge business driver for asset management firms in 2008, according to a new TowerGroup report. The report, 2008 Top 10 Business Drivers, Strategic Responses and IT Initiatives in Investment Management, noted that last years credit crunch and quant meltdown did not dampen investor interest in new products that provide inexpensive index exposure or alpha.
Although the blowups of 2007 may slow investors appetite for extreme, quantitatively driven strategies and funds, we do not believe that they will drive investors back to traditional actively managed products, noted the report, written by Peter Delano, research area director, and Dushyant Shahrawat, research director of investment management.
Another key factor affecting business growth in 2008 will be the challenge to execute trades across myriad pools of liquidity. Liquidity issues are gaining importance as managers run single portfolios worth tens of billion of dollars, the report said. Other factors include the increasing sophistication of retail and institutional investors who scrutinize manager performance more closely, and more pressure on managers to develop products with lower fees
The report also indicated that although there is no landmark regulatory shift in the investment management industry expected this year, managers should not rest easy. In the absence of expansive or disruptive regulation in the investment management industry, the transitional regulatory environment means that firms will monitor where the regulators might target next and take an inward look at managing their existing regulatory risk, it says.
Continued globalization, increased services tailored for particular demographic segments, and manager competition amid rising consolidation also will impact the asset management business this year, according to TowerGroup. The 2007 credit crunch will continue to put pressure on asset managers to evaluate risk and, separately, a need for improved information technology will be on the agenda in 2008, the report said.