Outlook & Trends for Investment Management in 2023

Mash Patel

January 30, 2023

A big thank you for the overwhelmingly positive response to our “Outlook & Trends for Asset Management in 2022” piece we compiled last year. We were pleased to see that our readership enjoyed the convenience of our summary and the references to some of the notable white papers and blogs that we mentioned. All chosen pieces were picked up from some of the most active observers and reputable names in the investment management industry. As we’ve entered 2023, we continue to see a trend of high quality of materials issued by professional service firms and service providers alike. These are referenced at the end of this blog. Suffice to say, that whilst most industry observers share many common themes, the keen eye may notice a few, slightly more controversial, predictions that may raise an eyebrow (or two). We’ll leave that in your capable hands to pass comment on, but in the meantime a brief distillation capturing our in-house interpretation is provided below:

A summary of the year past

There will be no real surprise to hear that macro-economic factors (war in Ukraine, post-Covid inflation, China slowdown) all combined to lead to a sharp decline in the overall performance of funds and, consequently, the share prices of all publicly listed asset managers across the world. Asset gathering slowed as investors hesitated. The inevitable outcome was the beginning of a new cycle of “efficiency management’ (aka cost cutting) right through the industry. Most firms started announcing sharp cuts in costs in the latter half of last year, where the majority of these cuts came through reductions in headcount, mainly in operations, technology and talent management where firms built up significant resource pools and capacity for ambitious projects in headier times.

Looking ahead at 2023

Consequently, we see many professional services firms claiming an uptick in requests for key skill sets and resources. Gaps have been left through a combination of over-cutting and the need for “necessary” projects and activities, specifically in relation to a hefty regulatory program for 2023 and beyond. This includes increased regulatory reporting requirements in every jurisdiction across sustainability, consumer duty and use of third-party service providers. On this basis, we see that regulatory related projects will continue to be a major focus for firms through this coming year.

Alongside regulatory programs, many industry observers are seeing an acceleration of technology programs that directly yield efficiencies and ability to scale.

The hand seems have been forced leading to a greater focus in 2023 on:

The Cloud is now a “must-have”

Whilst the “cloud” is by no means a new area of focus, many firms are now being forced to go all-in to driving their operating models through cloud-based technologies characterised by elastic cost models and lower in-house support requirements.

Third-party service providers

Outsourcers and administrators will be asked by their clients to step up. As investment managers shrink their in-house capabilities, they will lean on their key relationships to provide more services – with a catch – the services will need to come at lower overall basis-points against assets under administration.

Curtailment of “vanity” projects

Many technology programs will be suspended or shut down. Especially those where ROI is not immediately identifiable. This will invariably see a slow-down in spend on Deep Tech with most firms leaving all but the most cash-rich to continue investing in these areas. This will leave it to the true start-ups to continue innovating in areas such as AI/Machine Learning. Two areas where most see an exception is in the areas of asset tokenisation and thought leadership content creation (think Chat GPT) where, arguably, there are significant efficiencies to be gained evidenced through some industry projects that continued to mature through 2022.

With regards to asset growth, most observers see it coming in two forms:

Private Markets: New products, new distribution channels and new teams will continue to be the focus of many firms. Private investing is an asset class that seems to have got stickier through the turbulence of 2022 and industry predictions appear to suggest that 2023 will see a doubling down of investment managers in this area through product development and M&A activity.

Consolidations: Whilst the industry has been consolidating for nearly a decade, many observers predict a further acceleration. This will happen as the market adjusts to the permanence of reduced fees coupled with a more challenging asset gathering environment.

Last year we referenced many pieces that alluded to asset growth and excitement about a post-Covid bullish market. How things have changed so quickly in the space of less than a year.

The industry is adapting, and the consensus seems to be that the pain felt today will lead to a better run industry tomorrow.

Here’s hoping.

We trust you take the opportunity to download some of the materials referenced below and perhaps review some of the predictions from contributing parties in our Outlook for 2022 from last year – it will give you an insight into just how difficult the prediction game really is.

We thank all the publishers for their continued commitment to the industry and giving us all the insights that contribute to greater clarity of the issues we see now and throughout the year.

Below are the direct links to the reports we have reviewed:

Mash Patel
Founder of Kurtosys

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