BUY SIDE

Asset manager bosses extremely confident on growth prospects - PwC

Survey finds 95% of CEOs expect growth in the next three years, but cyber security is biggest threat in 2016.

By Hayley McDowell hayley.mcdowell@information-partners.com February 12, 2016 9:48 AM GMT

A recent survey by PwC has found 95% of asset management CEOs are confident of revenue growth in the next three years, but do not anticipate improvements to global economy in 2016.

The survey queried 189 asset managements CEOs in 39 countries about what they expect in future from technology, data and analytics, growth and the global economy in 2016.

Global asset management CEOs have expressed a widely unanimous view that revenue will grow in 2016, with 90% saying they were either confident or very confident. An overwhelming majority of 95% of asset manager CEOs expected revenue growth in the next three years.

Interestingly, just 30% of CEOs in asset management expect improvements to the global economy over the next 12 months, and 25% expect to see further declines.

However, Richard Phillipson, principal at consultancy firm Investit, told The Trade this may be overly optimistic. He explained: “For three reasons it seems unlikely 95% of the CEOs will experience growth in revenue over the next three years.

“There is a chance fees might go down more than sales and markets go up - we have a much more price aware market now.  We work with firms designing new funds and much of the time we are looking to build low price, low cost solutions.

“The second point is that we have a more ‘winner takes all’ world so we would not expect new sales to be made uniformly. Industry revenues may go up, but this may not be experienced by 19 out of 20 firms. Thirdly, none of that takes into account the possibility of major new competitors coming to the market.”

The survey also highlighted several threats to growth for asset managers, including over-regulation, geopolitical uncertainty, volatile exchange rates and interest rate rises.

It found 61% of CEOs see stock market volatility as a threat to growth, whilst 60% emphasise cyber security as a threat.

Commenting on the survey’s findings on threats to asset management, Mark Pugh, UK asset and wealth management leader at PwC, said: “…there are grounds for wondering whether asset managers worry enough about some of these hazards.

“Are they anxious enough about cyber security, disruptive technology and changing consumer demands and expectations?”

Investit’s Phillipson expanded on Pugh’s commentary, explaining cyber security is more of an issue for IT departments and COOs than CEOs.  

Phillipson said: “Investit’s experience here is that while 60% of CEOs might think cyber security is a threat to growth, nearer 100% of Heads of IT and COOs are looking very hard at this.”

In terms of staff and employment, PwC’s survey found 69% of CEOs in asset management see a shortage of skills as a key issue, with 65% planning on expanding teams and hiring new people in 2016.

Shortage of skills is increasingly becoming an issue, as Pugh explained asset managers aren’t doing enough.

He said: “The asset management industry needs to do much more to address how they can tap in to the pools of talent available to them… It is an obvious and necessary step to start to address the skill shortage.”

Phillipson at Investit concluded skill shortage could lead to a major shift in dealing operations. He explained: “The combination of regulatory changes, particularly from MiFID II and the need to cut costs means asset managers will look more seriously into streamlining, and ultimately outsourcing their dealing desks.

“In future the best dealers might be with the outsourced providers."

As asset managers continue to cut costs, with regulatory pressures increasingly threatening growth, 86% of CEOs say they will prioritise long-term profitability over short-term.

However, focusing on long-term strategies is often easier said than done, as Phillipson pointed out: “It’s easy to say this when things are calm but when markets dip, firms are often in cost cutting mode. “

He concluded: “This might well be driven by a group policy and the fund manager is caught up in it despite their best intentions.

“The difficulty is that if asset managers do not take a more long-term view and spend to become more efficient, they will not have the low cost base from which to appeal to clients in the new low price world."