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(April-2004) Managers should trim 10 per cent off their portfolios
Asset managers are being confronted with some of the most difficult and complex decisions they have faced at any other time in history, according to a report on asset management produced by US-based firm, Cerulli Associates.
What is more, Cerulli believes that the industry needs to eliminate about 10 to 15 per cent of existing portfolios.
The report, Asset Management: A product Strategy Framework, says Cerulli’s prognosis for asset management firms during the coming years is based in large part on the firms’ ability to implement an effective product strategy.
“More than any other factor, the asset manager’s ability to formulate and carry out a product strategy that fully leverages core competencies against marketplace and distribution opportunities will define its fate,” the Cerulli report says.
“The convergence of marketplace dynamics, structural evolution, greater risk and regulatory uncertainty, and fiscal discipline are challenging asset managers with more difficult and complex decisions than they have faced at any other time in history,” the report says.
It says that in these circumstances, strategic product management and effective product governance are the keystones to success in product strategy and execution.
Looking at the broad landscape confronting asset managers, the Cerulli report says volatile markets, corporate scandals and regulatory uncertainty have combined to leave asset managers struggling to cope with an increasingly challenging business environment.
The company says that to make matters worse, two decades of new mutual fund introductions have left the industry with an abundance of small, unprofitable portfolios, with Cerulli estimating that the industry needs to eliminate at least 10 to 15 per cent of its portfolios.
Cerulli says that in navigating these and other challenges, successful asset managers will have to employ a highly strategic product development and governance structure.
Looking at the core question of mutual fund profitability, Cerulli says that although margins have declined, mutual fund products remain highly profitable, even after several bruising bear market years.
“But over the longer term, mutual fund profit margins will likely compress further as costs continue to rise and revenues continue to shrink,” the report says.
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