Indefi: Asset managers must rethink distribution as wealth and alts channels become more important

Investment managers' distribution channels and strategies' key performance indicators may need to be reevaluated in the wake of a likely recession and shift to the wealth channel as a key driver, according to a survey of 36 asset managers with more than $25 trillion in total assets under management by Indefi, an investment manager strategy consultant.

"It's really important for firms to realize that as the markets mature or when operating in a hyper-competitive environment," added Jonathan Doolan, managing partner at Indefi, in an interview on the survey results. "The ability to differentiate outside of performance and product are fundamental and (an example of) that's being thoughtful about the user experience for prospective clients, as well as… new clients and then also being really thoughtful about what is the entire infrastructure required to serve clients, in an efficient way."

Indefi projects that the asset management industry will grow to $132 trillion in 2026 from $102 trillion in 2021 and that this growth will primarily come from wealth channels across geographic regions.

In 2026, the U.S. could hold 47% of global AUM, with Europe, the Middle East and Africa at 20% and the rest of the world at about 34%, according to Indefi's research.

The firm observed that the asset management industry could see slower growth in the U.S. and Europe in the next four years, and asset managers will need to become more selective on their allocations due to ensuing global competitiveness.

Growth outside of the U.S. and Europe will be a long-term commitment, the firm also observed.

Mr. Doolan noted that when trying to push into emerging markets, large regulatory hurdles can appear, especially in Asia.

A piece of evidence to suggest an increase in competition is that fund launches are up 60% over the past decade across all asset classes, according to Indefi.

The survey also found that the top decile traditional active strategies compete with roughly 25 to 75 managers for market share.

Indefi said that the largest investment managers have kept their leading spots by developing or acquiring alternative capabilities and distributing them efficiently. The firm's data shows that of the top 50 largest managers, 68% have more than $10 billion of their AUM dedicated to alternatives.

As another sign of a competitive landscape, 20,000 active hedge funds and yearly launches of funds continue to exceed liquidations, though Indefi said in the study that there has been some cooling in the last two quarters.

Indefi's research also found that there are roughly 2,500 private equity funds in the market with more than $1 trillion in dry powder.

Overall, "the world will be increasingly pressured by the needs of wealth clients to drive and realize meaningful innovation," Indefi said in its survey report, adding that the conventional strategy of asset managers being an institutional extension must change to being wealth-driven instead.

Indefi said that products should be more tailored to investors' needs and goals, create liquidity and have sustainability at their core, especially in Europe.

For distribution, Indefi recommended a move away from an institutional-extension, product-driven and brand name-based strategy. Instead the firm recommends managers focus on relationships across their firms, co-construction of solutions and becoming digital enablers across the value chain.