Investment Managers Seek Ways to Differentiate Products in a Crowded Market
"Survival of the Fittest" Report from The Bank of New York Captures Critical Success FactorsLONDON and NEW YORK, September 20, 2005 - Investment managers need to find better ways of differentiating themselves in an increasingly crowded marketplace if they are to survive and prosper according to a new report commissioned by The Bank of New York.
The report, titled "Future Leaders in Investment Management: Survival of the Fittest," is the result of in-depth interviews from a panel of senior executives at investment management firms and consultants in the U.S., Europe and Asia. A majority of respondents said that a focus on performance and retaining key staff were the key success criteria for the future; however, they agreed that this alone will not be enough to break away from the pack.
When asked to choose the top three criteria for being a successful investment manager generating alpha was cited by 90 per cent of respondents, followed by the quality of staff and culture (66 per cent) and effectiveness of distribution
"The pressure to produce superior returns is as great as ever, but investment managers are concerned about a number of critical success factors," said Gerald L. Hassell, president of The Bank of New York Company, Inc. "Many are trying to strengthen their competencies across the entire manufacturing and distribution spectrum. At the same time, the competition for top talent remains intense and the need for a sophisticated branding strategy is emerging as a key challenge in a highly fragmented market."
Key findings included:
- A strong consensus that the investment management industry will remain fragmented and that as a result it will be difficult to differentiate and stand out from the crowd.
- The ability to get funds to market quickly is a major concern for investment managers. Many managers are investing in new product development and distribution strategies in order to develop their businesses.
- The majority believe that distribution and manufacturing will continue to evolve as separate businesses.
- The number of new entrants in the market will keep up with the rate of consolidation in the industry. Therefore, we may actually see an increase short term in the number of investment managers.
- Marketing departments can expect bigger budgets and more staff as senior management believes better branding is required to differentiate firms from the competitors.
- Retail fees may fall, but not to the level of institutional rates.
- Opinion is divided on whether active investment management is an essential ingredient of success.
Respondents believe managers must be top quartile performers to flourish and survive acquisition. They are also concerned about staff retention. Top performing teams are being lured away by equity stakes or greater autonomy at rival firms. The need to retain and recruit high profile portfolio managers as well as consistently delivering above average returns are seen as clear imperatives for success.
Getting funds to market is a major concern for investment managers. The majority believe that while there are some examples of successfully combining the roles of distribution and manufacturing, these roles are more likely to be split in the future.
Eighty nine per cent of respondents believe that companies which focus on the activities which make up their core competency will be the ones which can generate the greatest shareholder value and industry leadership.
The Bank of New York commissioned Taylor Nelson Sofres, a leading global research firm, to conduct the research. The full report can be viewed at www.bankofny.com.
The Bank of New York Company, Inc. (NYSE: BK) is a global leader in providing a comprehensive array of services that enable institutions and individuals to move and manage their financial assets in more than 100 markets worldwide. The Company has a long tradition of collaborating with clients to deliver innovative solutions through its core competencies: securities servicing, treasury management, investment management, and individual & regional banking services. The Company’s extensive global client base includes a broad range of leading financial institutions, corporations, government entities, endowments and foundations. Its principal subsidiary, The Bank of New York, founded in 1784, is the oldest bank in the United States and has consistently played a prominent role in the evolution of financial markets worldwide. Additional information is available at www.bankofny.com.
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