In the current operating environment with increasing competition, clients are questioning the value for money, while business stakeholders present complex demands. This makes strategic transformation essential for asset managers to succeed in this decade and beyond.
Strategic transformation for profitable growth
To maintain profitability in challenging times, firms often find it easier to cut costs than to achieve top-line growth, typically resorting to tactical measures like workforce reductions, tightening expenses and minor process tweaks.
However, for long-term profitability, a more ambitious, strategic approach to costs and growth is necessary. Merely cutting costs is not enough for lasting success; strategic renewal should align with a firm’s unique objectives and strengths, avoiding generic strategies. Effective profitable growth transformation requires setting clear strategic priorities, which may include identifying quick wins for immediate benefits – but these should complement, not replace, a comprehensive strategy for change.
Firms can view strategic transformation programs through six key lenses to help improve efficiency, strengthen resilience and enable long-term profitable growth:
1. Realign around the client. Build solutions that foster outcome-driven partnerships that help clients reach their goals. Deeply understanding client’s needs and preferences is crucial for developing optimal client solutions. This approach will help asset managers differentiate by offering enhanced customer experiences and portfolio outcomes and thereby strengthening trust and loyalty.
2. Revisit investment propositions. Economic change, technology innovation and other megatrends will push asset managers to revisit the way they conduct core investment activities to stay competitive. Product and solution development need to become smarter, faster and technology-driven if firms are to implement new investment strategies at pace. Some of the key ways through which firms can enhance investment processes and product development include:
- Augment investment processes with artificial intelligence (AI) can help asset managers quickly capture sentiment on the street, perform real-time research and conduct alpha calculations. For example, a leading European asset manager uses an AI platform to forecast stock price movements. The platform analyzes vast amounts of text, including articles, call transcripts, and broker research, to detect shifts in a company’s key performance indicators and assess their impact on its stock price.³
- Consider new investment themes such as green hydrogen, quantum computing or nuclear fusion, which supports growing industries such as renewables and sustainable packaging. For example, a large European asset manager recently launched a fund that invests in Paris Agreement-aligned companies focused on five themes including AI and robotics, safety, the subscription economy, water conservation and wellness.⁴
- Explore innovations such as fractional investing, digital assets, tokenization of assets and direct indexing.
3. Accelerate digitalization and automation. These are set to revolutionize interactions among asset managers, advisors and asset owners, fostering real-time engagement and data sharing via online platforms. The integration of generative AI, human insights and customer data can further enhance transparency and personalization in digital client interactions. This technology paves the way for AI-enhanced contact centers, where bots assist staff in client interactions or handle complex enquiries. Technology enabled client service will help asset managers stand out, strengthen the brand and build enduring relationships.
4. Target growth areas. The rise of disruptive forces is creating new niches and opportunities but intensifying competition means generalized strategies are less likely to deliver outperformance. Firms can focus on high-growth sectors such as alternative investments, ESG investing and rapidly expanding markets in Asia to achieve long-term value.
5. Transform business models. This is essential for implementing growth strategies and enhancing productivity. To establish a sustainable and efficient foundation for growth, asset managers can:
- Reduce costs in absolute and relative terms
- Change fixed costs to variable costs, thereby increasing flexibility
- Make operations more scalable
- Improve cost transparency and oversight
6. Inorganic growth. Given the benefits of scale and diversification, and the ongoing fragmentation in the industry, mergers and acquisitions (M&A) will remain key for expansion. However, M&A should be strategically driven, with clear strategic goals such as acquiring specialized investment skills, entering new markets, gaining technological expertise or tapping into mature distribution networks with an established client base.
The top-down approach to profitable growth transformation
Asset managers should take a top-down approach – starting with a long-term vision, identifying capabilities and gaps, defining the target operating model, and then finally moving to solution selection and implementation. Clear strategic objectives and a focus on stakeholder value are essential for sustainable, profitable growth. Firms should also continuously monitor market trends to ensure their strategies align with their overarching goals.
At EY, we have developed a structured, comprehensive framework that adopts a progressive approach to achieve and manage profitable growth. Our top-down strategic transformation approach begin with a framework tailored to the firm’s objectives, size, business and capabilities and unique differentiators. This guides the overall transformation program - methodically adapting the current operating model towards the target of ‘profitable growth.’
What is your strategy to lead your organization through the uncertain operating environment? Talk to us to realize your transformation plans.