Top 8 Trends for Asset Managers in 2012: Cerulli

Despite the impact from turbulent markets, asset managers both in the U.S. and around the globe emerged from 2011 more focused than ever, says Cerulli in a “Top Trends to Watch in 2012” report.

So what’s the biggest take-away for asset managers in the wealth management space?

“Cerulli believes the biggest lesson learned over the last three years is ‘doing more with less,’ and firms should now apply that discipline to targeted growth,” say the Boston-based research firm’s practice heads in their report.

This year, the asset management industry remains cautious yet poised for opportunity, according to Cerulli, which predicts that challenges for 2012 will include:

• Protecting margins at a time of greater pressure on fees
• Growing wariness among investors
• Increasing demand for costly support and services from distributors that want to work with fewer firms and institutional investors that want more services.

“Many firms have adopted austerity positions during the last few years, and for good reason<” Cerulli says. “However, 2012 may be the time to put excess capital to work and incrementally grow resources and capabilities again.”

Read on to learn eight top trends for asset managers highlighted in the Cerulli report.

1) Regional Growth Around the Globe

Cerulli believes the U.S. market of asset managers, which represents 50% of the world’s assets under management, will lead the way in net national income and market appreciation for the global asset management industry. Retail, retirement and institutional money sitting on the sidelines will begin to make its way back into the market. Advisors, fund providers, distributors and advisors will be more than ready to aggressively pursue prospects and clients.

Worldwide, growth will vary, led by Asia, Europe and Latin America as institutional investors and pension providers lead the way. Europe, still under the shadow of the sovereign debt crisis, will see moderate investment flow to the United States for safety, and to Asia and emerging markets for return.

Asia’s growth will be hampered by a decreasing wallet share among mutual funds, increasing regulation that will limit product development, and by distributors that are wary of expanding their roster of investments. Further, institutional investors will manage more of their assets internally, rather than doling out mandates. In Latin America, pension systems will continue to be the engine of growth.

2) Hiring on the Rise

Asset managers in the United States and elsewhere will engage in selective hiring in the next 12 months, Cerulli predicts, believing that firms will hire both specialists and generalists. The demand for more advisor-focused education including value-added programs is prompting managers to bolster their product specialist staffs and other training-focused human resources.

Rising request for proposal volume and database demands will translate into new hires for RFP teams, including writers and database administrators. The push toward social media and mobile-device friendly websites means that managers need social media and other e-commerce experts. At the same time, the dynamic nature of the industry calls for managers, particularly at smaller firms, to employ professionals that can operate as adaptable generalists.

3) Alphabet Soup on Regulation Menu

In 2012, regulation will be a primary driver of business decisions, Cerulli believes. An alphabet soup of regulations comes from Europe and Asia as regulators still smart from the collapse of Lehman Brothers. This means that firms will need to tread carefully as they build their international business, according to the firm.

Regulations will play an increasing role in how products are developed and sold. For this reason, fund managers will need to cater to local requirements, while keeping an eye on expenses and focusing on core strengths.

“In Latin America, a key shift in Mexico’s pension regulation opened the door to international separate accounts, and the first RFP culminated with Banamex’s private pension plan awarding $500 million to J.P. Morgan, BlackRock  and Schroders,” Cerulli reports. “In the United States, advice providers await final rules and implications of a possible universal fiduciary standard theoretically imposed by the Dodd-Frank Act of 2010.”

4) The Retirement Sweet Spot

The global defined contribution (DC) revolution promised in the 1990s has never really materialized, but Cerulli believes that 2012 is the year global firms will put their stake in the ground and initiate their plans. “While long-term investment has always been the sweet spot for mutual funds and DC platforms, personal pensions and budding government systems will be the best way forward for most firms,” Cerulli says.

Opportunities will exist for both full-service pension managers, particularly those partnering with global custodian and administrators, and investment-only asset managers. In Europe, crumbling state commitments, high tax rates and new structures will drive assets toward corporate and personal plans. In Asia, mandated state systems designed to avoid the welfare state and tap in to high population rates will begin to take shape. Meanwhile, the pensions of Latin America will continue to provide strong and steady growth.

Cerulli believes that success in managing pension assets outside the United States “will not come easy, nor will it come in the near term.” Further, the investments most in demand will be lower revenue generating fixed income or passive equity mandates. The bulk of assets will be awarded to local managers, and for that reason, they will not be scalable from a global perspective.