Power in the investment management industry is shifting to money holders from money managers due to several major economic, social and political trends.
The traditional asset management industry structure is being met by irresistible forces. There are five key trends impacting the investment management industry.
A new group of people.
Women in the US are expected to control as much as $30 trillion in assets over the next five years, and by the year 2030. The industry will be expected to reflect better gender balance.
The past generation of older men tend to invest more than women. When selecting investments, the younger generation is more socially conscious. Because of their age during the financial crisis, they have a negative perception of some financial services companies. The popularity of ESG investing can be explained by the change in investor base values.
The center for mining the future has an image.
Allocators are becoming less tolerant and unwilling to look the other way when it comes to toxic cultures of sexual harassment and discrimination at some investment managers. As the culture and preferences of allocators change, so will their investment criteria and tolerance for bad behavior.
Many of us are using the same infrastructure tools we have used for the past 20 years, which is why we are being marketed as frontier technology investors.
Suzanne Ley, former head of financial institutions at Westpac, said that the traditional financial adviser model is not going to work for the young people because of their distrust of authority. They demand complete transparency in all aspects of their life, so hidden/opaque fees structures are not going to be allowed. They have a high propensity to move jobs more frequently than past generations, so the portability of financial assets is going to be very important going forward.
Capital flight is caused by political risk.
Political uncertainty is bad for allocators as it destroys asset value. The new cold war between the U.S. and China is ideological, but also about technology dominance and cybersecurity.
Capital has been moved to regions of relative stability because of the new cold war. Millions of well-educated and wealthy citizens in China, Russia, the Middle East and South America are afraid of anarchy or tyranny. The first net private capital outflows in emerging markets are due to the risk of rising rates in the U.S. and Europe. The country is relatively stable despite the negative economic outlook. The U.S. is an attractive safe haven with places like Switzerland, Singapore and the U.K.
There is an opportunity for pension funds and wealth management funds to grow geographically. India provides the perfect environment for the growth of a new wealth management industry because it is saturated in traditional markets. Demand for wealth management products will be driven by a combination of a strong middle and upper-middle class, well-educated professional class, a free-market economy and expansion of disposable wealth.
