New report delivers wake-up call for active management industry
The active management industry must work harder in a number of critical areas to convince investors of its value proposition, according to a new report released by Allianz Global Investors.
Incorporating the views of nearly 500 institutional investors from around the world with USD 15 trillion in Assets under Management, the report, ‘Staying Active: how to regain trust in active management’, outlines that while active managers are best placed to help investors overcome the challenges they themselves identify, overall confidence in active managers is low.
Of the global investors surveyed, less than a quarter (23 per cent) said they thought active portfolios were worth the cost, with just 17 per cent of respondents in the US agreeing. By contrast, 61 per cent of investors said they thought active management was the best investment option when the underlying components of markets show little correlation and 71 per cent said they thought active managers were best placed to capitalise on the investment opportunities presented by digital transformation.
While important, the report found that performance is not the only factor influencing investors’ choice of managers, with 48 per cent saying it was one of their top three priorities in manager selection. The investors surveyed also expressed a clear preference for wide-ranging, long-term relationships with firms that understand their business goals and challenges (41 per cent). They are also looking for managers to have the capabilities to evolve with their needs, which can result in benefits for both clients and managers (40 per cent).
The report identifies five key areas where asset managers should focus on upgrading their services to win greater confidence and long-term commitment from investors.
• Offer innovative risk approaches – less than half of the investors surveyed feel they have the appropriate tools/solutions to deal with tail risk.
• Facilitate ESG investing – 61 per cent say active managers are better stewards than passive, but 60 per cent are confused by different approaches to ESG. Nonetheless, 72 per cent of institutions plan to manage all of their assets in an ESG-conscious way by 2030; nearly two-in-five (38 per cent) plan to do so by 2025.
• Inform investors on Alternatives – 45 per cent are deterred by an overabundance of new products, with 61 per cent saying they would allocate more to Alternatives if the strategies were clearer.
• Adopt technology to enhance client outcomes – 61 per cent of institutional investors believe active managers are better able to capture market opportunities by taking advantage of AI and big data.
• Champion innovative fee models – 68 per cent want fee structures that adjust with performance.
Andreas Utermann, CEO of Allianz Global Investors, says: “This report should serve as a wake-up call for those parts of the active asset management industry that have yet to grasp just how fundamentally our industry is changing. In today’s challenging market environment, active management is more relevant than ever. In fact, only active management can provide the type of tailored, bespoke solutions needed to meet many of the investor challenges identified in our report around disruptive technology, innovative fee models and ESG. But investment managers must maintain a laser focus on delivering for clients to be able to stand out and thrive in a crowded and consolidating market.”
Tobias Pross, Global Head of Distribution at Allianz Global Investors, says: “The findings confirm what we hear from clients around the globe. By being close to them and listening carefully, we anticipated these growing client demands and started some years ago to invest into advisory capabilities and our digital client experience. We have also strengthened our value proposition by pioneering new approaches to integrating ESG, building a leading Alternatives franchise and innovating in fee models. As we continue to grow our offering, we will remain relentlessly focused on building long-term relationships with asset owners and ensuring our business is aligned with what they expect from us as a leading active investment manager.”
The report also asked investors about their top concerns for 2019, with 80 per cent saying they were most worried by market volatility, 79 per cent by monetary policy and 75 per cent by inflation. Nearly 9 out of 10 (87 per cent) of those surveyed said investors have become complacent in the decade since the financial crisis.