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Thursday, February 1, 2007
Channeling challenges

The investment management industry believes that business revenues will increase by 20 % or more over the next three years, but new products and innovative distribution strategies will be key factors in achieving such growth. These are some of the challenges facing the industry as revealed in the PricewaterhouseCoopers 2006 Global Investment Management Survey.

Pierre de Villiers, of PricewaterhouseCoopers Southern Africa, says that evolving investor demands and disruption to existing distribution channels over the next few years will present a demanding environment that needs to be well managed.
Executives in the industry recognise they need to develop innovative products, particularly for emerging markets. Although new product development will be a priority, the traditional offerings will remain dominant.
On average, executives participating in survey expect the traditional assets under management to comprise around 41 % equities, 29 % fixed income products, and 10 % in hedge funds. The larger firms expect to remain focused on the more traditional areas of equities and fixed income.
Research in the US shows that investors are increasingly looking to tailor-made offerings from independent advisers. Mr De Villiers recommends that traditional fund managers would do well to consider accommodating such a move to more personal and individual designs.
The survey results also indicate a broad trend toward specialist products, and over the next three years investment managers plan to increase their offerings in alternatives such as hedge funds, private equity and real estate. To a lesser degree, they are also considering investor demand for Shariah compliant and socially responsible products.
The PwC global investment management survey canvassed 81 investment management organisations of varying sizes and disciplines from around the world, representing US$9 trillion of assets under management, and included 20 South African firms.
Respondents displayed a surprising lack of confidence about distribution strategies in the face of possible consolidation of existing distributors. It is likely that existing channels will be disrupted and the industry is unclear on what strategies to adopt next.
Executives are aware they have to increase the distribution of existing products in current and new markets but rate themselves as quite inadequate in this respect, with the smaller asset managers showing the least confidence in their distribution capabilities.
They acknowledge that the internet will probably emerge as a powerful distribution medium in the industry. As bankers and brokers consolidate, and internet retailers become more powerful, there is a risk that these players will be able to demand higher distribution fees.
Respondents are aware they will have to be more aggressive in competing for distribution space and their branding tactics need to be backed up by solid performance. A number of respondents are looking at distribution strategies into the emerging markets like Eastern Europe and India, but as yet, China remains unknown.
Mr De Villiers says that the asset management industry will be transformed in the next five years and those who come out on top will be firms that have adapted to the changing environment, seized new opportunities and remained strong in their core competencies.
Other significant challenges facing the industry over the next few years include the recruitment and retention of quality staff and ever-growing regulatory and compliance requirements.

Copyright © Insurance Times and Investments® Vol:20.1 1st February, 2007
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