Consolidation, regulatory risks, and the need to stay relevant to the target audience of investors and asset owners are considered as the topics that keep C-level asset managers awake at night. At the Efama conference in Brussels on Thursday, CEOs of five firms underlined the importance of adaptability, technological integration, and maintaining a clear company purpose.
Their debate highlighted a dynamic landscape, with a strong focus on sustainable investing, technological advancements, and adapting to market changes. The industry leaders showed optimism about the future, despite acknowledging the challenges ahead. Technological innovation, driven by artificial intelligence, is seen as a positive factor by most.
Industry consolidation has been widely discussed for more than a decade. But so far, the anticipated wave of mergers and acquisition has not materialised during the recent years, also given that these were marked by low interest rates and cheap money. One of the ‘challenges’ that the asset management sector faces; it is very profitable.
‘Only buyers. No sellers.’
“We have been waiting for consolidation in this industry for more than a decade now,” said Philippe Setbon, CEO of Ostrum Asset Management, previously known as Natixis. “Why? We operate in an environment with quite high operating margins that has been supported by central bank policies for more than a decade. We only have buyers and not enough sellers.”
Still, the interest is out there. Karin van Baardwijk, CEO at Dutch asset manager Robeco, which earlier this year divested its retail business to Kempen Van Lanschot, sees interest from traditional asset managers looking to expand their services outside traditional equity, such as new market solutions for private assets.
“It’s also a matter of multiples, goals are still pretty high,” she said. “You see them come down on the public side. On the private market side it’s a bit more difficult. Here we want to acknowledge those efficiencies. I think that’s something we’ll see more of.”
Van Baardwijk sees technology as a potential new driver of consolidation. “There is a quest to add scale, to expand the growth ambitions of traditional asset managers, but also the potential of new technology. Some of us are reluctant to do that ourselves, maybe searching for smaller startup fintechs to help with specific AI driven or data related topics. And the other part I do see is tapping into different distribution markets.”
“I do think, given the market conditions, still a bit wait-and-see how much of the digital materialises going forward, but I do see consolidation potential,” she said.
‘Adapt or fail’
Close to four out of five asset managers worldwide are considering their options for partnerships, mergers or acquisition, according to a PWC report that was published in July. “Adapt to the new context or fail,” the report said. The asset and wealth management industry “is grappling with a set of existential challenges exceeding those of any previous era,” the consultants concluded.
Hamish Forsyth, President Europe & Asia at Capital Group, sees the increasing potential of AI in asset management as a factor in the consolidation game. “We’re very pleased to be in a position where we can stick to our organic growth plans. Scale is helpful in this respect. But there’s a lot that’s going on. It’s very taxing. Regulation is discussed. But I just think about AI, the projects that we put into place, projects that we hadn’t even considered possible a year ago.”
Ostrum’s Setbon and Johan Lema, CEO at KBC Asset Management, also highlighted the increasing role of AI in asset allocation and investment management. “I have been in this industry for over 34 years,” said Ostrum’s Setbon.”And for the first time, I have a feeling that technology is shifting the way we manage our business.”
Generational knowledge gap
Lema mentioned KBC Asset Management’s success with Belgium’s first AI-driven fund, the Optimum Enhanced Intelligence Fund, illustrating AI’s growing influence. The “model is not really good at market timing. It is out there. We see how it works, but the value will come out over time,” he said.
More importantly, AI can also help address the generational knowledge gap, Lema said. With an ageing workforce, firms like KBC fear that knowledge about asset management that has been built up over decades is at risk. An entire generation of senior experts is slowly disappearing, and only replaced, largely, by data and tech experts with no significant experience in asset management.
“What we need to do is to be able to convince the senior asset managers to transfer their knowledge, to - and that is where we need the tech people - get this into the models and make that that this knowledge stays with us,” Lema said. “That is a difficult thing, it’s cultural. It’s a cultural shift we are going through.”
“It’s extremely important also to make sure that you have the right culture,” said Van Baardwijk, “with the right growth mindset to embrace that intelligence to see how can this hold it together and create this cohesion within the organisation.”
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