For the investment industry, aggressive monetary policy easing by central banks has helped lift markets to new highs, buoying assets under management in the investment industry.
At the same time, the post-crisis era has been marked by a tectonic shift in favour of cheaper, passive products such as index-tracking mutual funds and exchange traded funds, as investors have increasingly eschewed more expensive active managers that on average have a shoddy record of beating their benchmarks.
The result has been the toughest environment for the global asset management industry in memory, according to Ron O’Hanley, the Chief Executive of State Street Global Advisors.
“The industry has had an extraordinary rise,” Mr O’Hanley says. But he admits: “A lot of the growth has been easy growth. The challenge is that clients weren’t being well-served.”
The latest scorecard from Spiva, a semi-annual review of the industry’s performance by S&P, shows just how poorly investors have fared over time.
Many investment groups hope a brighter future is dawning, with rising interest rates and falling stock market correlations making it easier for active managers to beat their benchmarks. But many analysts say that even a performance improvement will only slow the passive investment trend, and predict that the inevitable result will be more mergers and acquisitions in the splintered asset management world.
There has already been a batch of big deals, most notably Janus Capital merging with Henderson, and Standard Life swooping for Aberdeen Asset Management. But there is probably more to come. “It has historically been hard to take two active shops and merge them together. But in this stage of decline that won’t hold. I suspect we’ll start to see more M&A,” Mr O’Hanley says.
One potential glimmer of hope lies in the impact of technology, with many industry insiders predicting that advances in artificial intelligence, coupled with the rise of “big data”, can help trim costs by automating a lot of back-office functions and even enhance investing prowess.