Most asset managers and other financial service firms are or plan to invest in automation tools to enable greater operational efficiency, according to a new report.
Cerulli Associates discloses this finding in the January 2014 issue of “The Cerulli Edge: U.S. Asset Management edition.” The report examines trends in asset allocation and alternative products, institutional distribution and product developments.
The report finds that 75 percent of large and medium-size asset management firms are using automation tools and an additional 13 percent plan to start using such tools. Among small firms, none are currently using, but a sizable minority (44 percent) plan to adopt them.
“Supporting their 2014 firm-wide efforts to innovate new products and services, expand distribution and build brand awareness requires managers to invest in their businesses,” the report states. “Investment in technology and costs of compensation ranked among the areas with the greatest impact on margins.”
The report adds that asset management firms are intensifying their focus on retail product developments around asset allocation solutions (74 percent of respondents) and alternative strategies (62 percent). Among the other areas of priority:
- Domestic equity – 46 percent;
- Global equity - 38 percent;
- International equity - 33 percent;
- Retirement income solutions - 31 percent;
- Global fixed income - 28 percent;
- Emerging markets fixed income - 23 percent;
- Emerging markets equity - 21 percent;
- Passive/index assets such as ETFs - 18 percent); and
- International fixed income - 10 percent.
“Many firms seeking to capture a greater share of the alternatives markets are meeting demand in a number of ways,” the report said in respect to alternatives. “Some hedge fund shops are going ‘down market’ to acquire retail assets following the U.S. Securities and Exchange Commission’s new rules on advertising private investments to the general public.
“In contract, more traditional asset management firms look ‘up market’ to the institutional and high net worth (HNW) clients they may not have attracted in the past,” the report adds.