A key theme I identified last year was asset managers ‘doing more with less’. There has certainly been a shift toward more automation, saving on resources while dealing with rising volumes and complexity of trading. In general, however, CTOs have taken a fairly short-term view on their systems expenditure and have been reluctant to invest heavily in large-scale projects with a distant horizon. The main reason for this short-term perspective is the ever-present threat or uncertainty stemming from regulation, which as I said this time last year, was ‘soaking up much of the corporate budget’. I would see this situation changing in 2015 with some more truly transformational systems infrastructure initiatives coming to the fore.
Since 2014 we have seen substantial increases in volumes, the complexity of instruments being traded and a shift to multi-asset allocations. These changes have placed a strain on investment management operations, as platforms that were built for much simpler business models have been stretched to the limit. Some specialist systems have been brought in to bridge the functionality gap, but this has often resulted in a more complex technology stack rather than speeding up trade processing. I envisage that this year we will see more asset management firms tackling this increased complexity and volume through strategic solutions than quick fixes.
The crisis over the euro had been diminishing last year until the Greek elections placed the beleaguered currency once again in the spotlight. More general concerns over the economy in Europe have taken precedence, with fears of a longer-term downturn. I anticipate a growing gap between the economic prospects for the two continents of Europe and the US.
A recent IMA study shows that the volume of non-UK owned asset managers is below 50% for the first time ever. The highest ownership of UK asset management firms outside of the UK is the US. This has been largely down to M&A activity and I expect this trend to continue in 2015. Assets under management are still growing, but I still see some fragility in the market for the long-term.
There were a number of star fund managers (such as Woodford and Gross) leaving established firms in order to launch their own enterprises. I see this as a continuing trend, with the territory of the middle tier of asset management firms being gradually eroded by a small number of monoliths and a groundswell of niche boutiques.
The shift to passive investment strategies was a feature of 2014, with BlackRock, Invesco, L&G and Vanguard all moving into this field. Few would argue that active fund management will continue to lose ground this year. I also believe that fears over risk and high fees will continue to hamper institutional investment in hedge funds.
Overall I think it's a bright immediate future for asset management, with some threatening clouds on the horizon.
