Future asset innovations will focus on improving existing products and models more than creating new ones, according to a recent survey.
CREATE-Research, London, released an annual independent survey that examines the role of market innovation over the last decade and the expectation of innovation within the industry. The survey was commissioned by Citigroup Inc. (NYSE: C), New York, and Principal Global Investors, a member of Principal Financial Group (NYSE: PFG), Des Moines.
The survey polled 108 pension plans and 396 asset managers, pension consultants, third party administrators and distributors from over thirty countries.
Survey authors found that 88% of asset managers believe product innovation will be the focus of businesses over the next three year. Of those managers, 52% believe that product innovations will be “incremental,” focusing on improving the features of existing products, as opposed to 36% who believe change will be “wholesale.”
Business innovation also ranked high in the survey, with 75% of asset managers believing innovations will happen in middle and back office outsourcing, distribution alliances, as well as in the multi-boutique and client-service models. Of those managers, 52% again believed that these changes would be “incremental,” focused on developing existing products.
The survey notes the incremental changes are fundamental as pension clients want asset manager to “improve the old before creating the new.” According to the survey, pension plans suggest asset managers take four actions to potentially improve the latest innovations. They include:
–Deliver better returns per unit of risk within a more symmetric fee structure;
–Deliver greater transparency and simplicity, so that the intrinsic worth of assets is not concealed by devices such as derivatives, leverage and shorting;
–Create a strong overlay of human judgment in risk models and investment processes; and
–Develop better proximity to clients to minimize the ‘wrong-time’ risks.