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Investment managers in Australia are encouraged by the growth
outlook for the next 12 months, yet they see a capability gap where
few are equipped to tap the opportunities ahead.
These are the findings of a new State Street survey of 300 asset managers
around the world conducted by FT Remark. Key factors that are causing
asset managers to fundamentally rethink their business strategy include:
• Investor demands for outcome-based investment solutions
• The emergence of superannuation funds that manage their own assets
• Opportunities to capture growth opportunities in overseas markets
“The Australian market is ripe for growth,” says Paul Khoury, Head of
Asset Manager Sector Solutions for Asia Pacific at State Street. “Asset
managers are taking that positive outlook into account when planning,
budgeting and developing new products. It’s definitely a positive and
buoyant market.”
Figure 1: Which one of these investment strategies do you think will contribute most to your business growth over the next three years? (Select one only)Australia-based respondents only
Focused on Evolving Investor Needs
84% of Australia-based managers say that changing client demands are causing a fundamental shift in their overall business strategy.
Frontline Revolution for Asset Managers
AUSTRALIA SNAPSHOT
20% 40% 60% 100%80%0%
7%
80%
Multi-asset solutions
Traditional actively managed equity
3%
3%
Traditional actively managed fixed income
Passive equity
7%
Other
2
Frontline Revolution for Asset Managers Focused on Evolving Investor Needs
CHANGING INVESTOR DEMANDS
The first step to success in this new environment
is to understand shifting patterns in investor demand.
More than four-fifths of Australia-based managers
(84 percent) say that changing client demands are
causing a fundamental shift in their overall business
strategy. One of the most striking examples of this
shift is in the types of investment strategy that will
drive growth.
Eighty percent say that multi-asset solutions will be
the investment strategy that will help them meet
clients’ objectives and drive most growth over the
next three years (a figure that is the highest of any
country in our survey) — yet 73 percent say that few
managers are equipped to offer them successfully.
A shift to multi-asset investment solutions requires
a major transformation of many aspects of an asset
manager’s operating model. Over the next three
years, more than two-thirds (70 percent) of Australia-
based asset managers expect to make significant or
moderate investment in skills training and 63 percent
plan to acquire new talent to address capability gaps.
Analytics tools around performance and risk are a
major focus for investment as they manage and
report across more complex portfolios.
“We are excited about the prospects for our asset
management business,” says Tim Barber, Chief
Operating Officer at Australian Unity. “Businesses that
can innovate based on client demands and needs will
be more successful than those that manufacture a
product and then go look for a market or a buyer.”
Like their global counterparts, Australia-based
asset managers are positive about the potential
to transform through M&A, whether to add new
investment capabilities, geographic presence or
scale. Seventy-seven percent of them see increased
opportunity for acquisition over the next 12 months.
Figure 2: Investing in Technology % Australian respondents that expect significant or moderate investments in the following over the next three years
TRANSFORMATION IN THE SUPER SPACE
Against the backdrop of increased member
contributions, super funds are undergoing a period
of transformation. They are searching for operational
efficiencies and also examining what investment
management capabilities they can develop within their
own organisations. In short, the asset owners are
becoming asset managers.
“As an investment manager, it means the
contestable pool is considerably less with the
internalisation programmes of a number of funds,”
says Mark Lazberger, Chief Executive Officer at
Colonial First State Global Asset Management.
The rise of the self-managed super fund (SMSF) is
another potentially disruptive factor in the industry.
While in some respects it represents a competitive
threat to asset managers, it also creates opportunities
for those that can provide innovative solutions to those
investors that manage their own retirement funds.
Asset managers must innovate and create an
investment strategy that meets the needs of the
super funds while ensuring growth.
20% 40% 60% 100%80%0%
93%
97%
Performance analytics
Risk analytics
90%
Data integration
33
Frontline Revolution for Asset Managers Focused on Evolving Investor Needs
CAPTURING NEW OPPORTUNITIES
While the deepening pool of super assets creates
strong local opportunities, asset managers are also
eager to diversify into overseas investments. Half of
the Australia-based managers say that they plan to
expand the business to new countries or regions
over the next three years.
“From an Australian vantage point, there’s a big
world out there and it’s another driver for us to look
at other markets,” says Colonial First State Global
Asset Management’s Lazberger, adding that the
target countries include the United States, Britain
and Europe.
However, they face some significant challenges:
• 63 percent of Australia-based managers agree that
distribution challenges deter them from investing
more in otherwise highly attractive markets
• Unclear business terms, the high cost of doing
business and exposure to regulatory risks are the
top three challenges Australia-based managers face
with third-party intermediaries for distribution
• Nearly two-thirds (60 percent) of Australia-based
managers say regulatory risk will strongly increase
over the next 12 months
“The regulations being introduced into the industry
pervade many aspects of an asset manager’s
business,” says State Street’s Khoury. “This
complexity brings uncertainty and costs, but
regulatory changes are also creating opportunities for
asset managers. They need to determine how they
can most efficiently support regulatory compliance —
whether by investing internally or through outsourced
relationships — to ensure they can stay focused on
their core investment competencies.”
Regulatory reforms, if implemented effectively, can
also help smooth the path to geographic expansion.
Three key initiatives currently being introduced
across Asia Pacific — the Hong Kong-China Mutual
Recognition, Asia Region Funds Passport and ASEAN
Collective Investment Scheme — should help facilitate
cross-border capital flows, give asset managers more
access to savings pools and help them achieve higher
economies of scale.
THE ROUTE TO SUCCESS
Ultimate success will require asset managers to:
• Make the shift from delivering traditional products
toward holistic solutions such as a multi-asset
portfolio as a mainstream investment strategy.
• Position themselves for longer-term expansion
through a mastery of local investor demands,
regulatory systems and distribution channels.
• Invest in new talent, adopt advanced technology,
and develop flexible operating models.
“If you’re innovating in a way that’s focused on serving
investors and their evolving needs, you’re going to
be more successful,” says Australian Unity’s Barber.
“This is where innovation should be focused.”
“As an investment manager, it means the
contestable pool is considerably less with
the internalisation of a number of funds.”
Mark Lazberger
Chief Executive Officer at Colonial
First State Global Asset Management
www.statestreet.com
4
Frontline Revolution for Asset Managers Focused on Evolving Investor Needs
©STATE STREET CORPORATION 14-22146-0614
ABOUT THE RESEARCH
The research presented in this report is based on a
global State Street survey of 300 senior executives at
asset management firms. The State Street 2014 Asset
Manager Survey was conducted by FT Remark in April
and May 2014. Respondents were equally distributed
across North America, Europe and Asia Pacific.
THIS IS STATE STREET
State Street Corporation (NYSE: STT) is one of the
world’s leading providers of financial services to
institutional investors including investment servicing,
investment management and investment research
and trading.
With US$27.5 trillion in assets under custody and
administration and US$2.4 trillion in assets under
management* at March 31, 2014, State Street operates
in more than 100 geographic markets worldwide,
including the US, Canada, Europe, the Middle East
and Asia.
* This AUM includes the assets of the SPDR® Gold ETF (approximately US$34 billion as of March 31, 2014), for which State Street Global Markets, LLC, an affiliate of SSGA, serves as the distribution agent.
If you would like to discuss the results with a State Street expert, please contact:
Paul Khoury +61 2 9323 6444 [email protected]
Andrew Willis +61 2 9323 6455 [email protected]
Sinclair Scholfield +61 2 8249 1244 [email protected]
This publication is issued in Australia by State Street Bank and Trust Company ABN 70 062 819 630 AFSL 239679 and is intended only for wholesale clients, as defined in the Corporations Act 2001. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.