But what if your entire career as an investor has been built on a rising market, or your approach has been largely price insensitive, based upon a period of abnormal returns? Furthermore, investors have dealt with falling rates for a generation; finding someone who has managed in an inflationary environment is rare indeed. Yet, the current global pandemic reminds us that the range of possible outcomes is often underestimated — as are the vectors of investment risk.
Given the known (and unknown) uncertainties ahead, consistent results will come from a dynamic synthesis of a wide range of quantitative and qualitative factors, requiring a manager to be part economist, part anthropologist and part historian. Asset managers that have made investments in teams with deep research and analytical capabilities will have an advantaged perspective on companies, industries, politics and demographics, allowing a broader perspective to identify opportunity in a changing landscape.
In the coming "next" environment, asset managers must deliver on an expanded mandate for clients: helping achieve tangible, holistic goals through investment. Traditional benchmarks will still exist, but increasingly serve as a point of reference, a guidepost toward longer-term, comprehensive potential outcomes. The most evolved will deliver alpha in support of client objectives and provide perspective on greatly expanded opportunity sets, historical parallels and time horizons. A range of enhanced analytical tools and new lenses on risk, including environmental and governmental, will be part of this toolkit.
A popular ethos in asset management has been the search for scale, often taken to be synonymous with assets under management and cost extractions. Efficient execution will remain important, but exceptional firms will balance two scales at once — the craft-based, creative cultures of individual investment teams and the quite different dimension of robust business infrastructure and distribution.
Next-era firms will have the ability to address a wider array of needs as investors reassess their allocations. To be more client-centric, firms should be conversant in a range of global assets, in both equities and fixed income, across different investment geographies. A diversified platform enables an investment firm to weather market cycles when certain strategies may be out of favor but can strategically position for future waves. In addition to research-driven approaches to price discovery, clients will demand cost-efficient, customizable operational and technology infrastructure, impeccable cybersecurity and digital privacy.