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2019 Investment Management Outlook Summary

Core Content

The 2019 Investment Management Outlook highlights the evolving landscape of the industry, marked by a mix of opportunities and challenges. Investment management firms are navigating a period of rapid transformation due to shifting investor preferences, regulatory changes, and technological advancements. While the long bull market has eased some pressures, firms must still adapt to new market dynamics and remain competitive.

Main Viewpoints

1. Challenges and Opportunities in 2019

• Investment management faces ongoing challenges such as margin compression, fee pressure, and regulatory complexity.
• However, there are new opportunities, particularly in emerging markets like China, and in leveraging technology for efficiency and customer experience.

2. Investor Preferences Diverge

• Millennials and Gen Z investors are moving away from traditional investment methods and prefer digital, low-cost, and mobile-first platforms.
• Institutional investors are seeking greater transparency, tailored solutions, and global products.

3. Regulatory Fragmentation

• Regulations in the US, Europe, and Asia are evolving with different priorities, making compliance increasingly complex.
• Firms are advised to build regulatory-ready organizations and anticipate ongoing changes.

4. Technology Disruption

• Tech-savvy firms are challenging traditional investment managers with digital-age capabilities and low-cost services.
• Investment managers must invest in AI, alternative data, and digital tools to stay competitive.

5. Growth Strategies

• Firms are pursuing both organic and inorganic growth, including acquisitions, partnerships, and entering new markets.
• The ETF sector is growing rapidly, and the rise of zero-cost ETFs is expected to further boost this trend.

6. Operational Efficiency and Compliance

• Operational improvements through technology, talent, and process optimization are critical for managing shrinking margins.
• Compliance with evolving regulations is a key concern, and firms are advised to adopt a strategic, long-term approach to technology and regulation.

Key Information

Growth Options

• Organic Growth: Firms are adopting new technologies like AI and cloud computing to enhance their operations and investment processes.
• Inorganic Growth: Acquisitions and minority stakes are being used to expand into new markets and gain capabilities.
• Market Expansion: China, India, and the Asia-Pacific region are key growth targets, especially with regulatory changes and a shift toward personal investing.

Private Equity (PE) Trends

• PE firms are seeing record dry powder and strong performance, but face challenges with debt financing and tax regulations.
• The 2017 Tax Act has introduced new provisions that may affect PE deal structures and financing methods.

Customer Experience

• Delivering a superior customer experience is crucial, especially for engaging younger investors and maintaining shelf space.
• Firms are investing in digital tools, such as robo-advisers and AI-driven wealth advisory services, to meet evolving client expectations.

Regulatory and Compliance Considerations

• Regulatory changes, including MiFID II and GDPR, require firms to adapt their compliance strategies.
• The conversion from partnership to C corporation is being considered by many PE firms due to tax advantages.
• Brexit and its implications for regulatory delegation are a major concern for firms operating in the EU.

Technology and Innovation

• AI is being integrated into various aspects of the investment value chain, including wealth advisory, portfolio management, and risk analytics.
• Alternative data is becoming a key tool for both active and passive managers to generate alpha and improve decision-making.

Predictions for 2019

• Proprietary Indexing: More firms are expected to launch proprietary ETF indices, potentially reducing expense ratios.
• Fulcrum Fees: Active funds may see an increase in the use of variable fee structures tied to performance.
• Cross-Border Expansion: Firms are likely to focus on agile distribution models, local partnerships, and transparent products to succeed in Asia-Pacific markets.

Key Actions for C-Suite

For Growth

• Invest in data storage and analytics to enhance alpha generation.
• Be proactive in acquiring new capabilities through M&A and minority stakes.
• Reimagine products using AI, ESG, and innovative pricing models.

For Operational Efficiencies

• Embrace cloud services and advanced analytics to improve scalability and reduce costs.
• Develop flexible and scalable operating approaches as processes move from pilot to production.
• Build stakeholder trust through transparent use of technology and data.

For Compliance and Regulation

• Align compliance processes with new regulations while leveraging existing systems.
• Evaluate the accuracy and robustness of advanced analytics systems and model risk.
• Consider operating relocations based on changing tax laws and regulatory environments.

Conclusion

The 2019 Investment Management Outlook underscores the importance of strategic adaptation, technological innovation, and regulatory awareness for firms to thrive in a dynamic market. Success will hinge on the ability to balance growth, operational efficiency, and customer experience while navigating the complexities of a fragmented regulatory landscape.