Anyone who thought the broad trend toward consolidation in financial services that began with the wave of financial innovation back in the 1970s ended with the market meltdown needs to reconsider. “Half of fund companies will disappear by 2030 as the asset management industry struggles to keep up with technological change,” says Tom Brown, global head of investment management at KPMG. Something similar to the zaibatsu model in Japan may be key to the future. Technology or retail giants could power the future in financial services.
KPMG financial services strategy partner Ian Smith adds, “This is a bit of a wake-up call to the industry. Unless the current players really [accept] the fact that it is a different world they are facing, over time they will be marginalized and taken over, or just shrink.” As always, medium sized fund groups face the greatest risk of losing control of their businesses through buyouts and asset shrinkage. Mega fund families rely on diversification, customer service, and marketing pressure to retain and grow AUM. Nimble small families outsource most services but can often point to outperformance to support asset gathering and revenue growth.By contrast, the poor diversification of mid-sized fund families increasingly exposes them to risk that their offerings move out of favor, competition for sell side top producers, and the changing needs of their client base, as well as, the rapid obsolescence of modern technology, data analytics. While 97% of those polled in State Street’s 2014 Asset Manager Survey indicated a positive outlook for growth this year, nearly half (48%) of the opportunity they cited came from developing new products for existing markets. Unfortunately as in most years there is a fundamental mismatch between opportunity and execution. Although roughly two-thirds of those polled expect multi-asset solutions to contribute most to growth, 74% admitted that they were poorly equipped to thrive by offering them. That points to mergers and acquisitions to keep pace with the industry and grow earnings.