Upping the Innovation Game in the Asset Management Industry

The asset management industry navigates a paradox: robust growth amidst declining profitability and intense fee compression. This environment mandates strategic innovation to transform operating models and unlock new value.

In a new research report, Upping the Innovation Game in the Asset Management Industry, Citi and CREATE-Research have released findings offering a comprehensive view of the focus on innovation to reshape the global asset management industry.

The report draws insights from 221 asset managers across public and private markets from 26 countries, managing a total of US$34.8 trillion in assets under management and features 40 interviews with senior executives from a cross-section of the survey respondents.

Key findings:

• The scope of innovation is changing: While innovation remains crucial with 59% viewing it as an overall priority, the scope is moving beyond new products to operational process and organizational transformation as firms respond to fee pressure and rising complexity post the 2008 Global Financial Crisis. 62% cited process innovation as a priority, followed by 41% for organizational innovation and 28% for product innovation. The scope of innovation has expanded to operational excellence for improved costs, quality and credibility.
• Innovations are targeting multiple goals: Innovation efforts now serve multiple purposes, with 83% citing being more responsive to client needs as a key goal. This includes meeting clients’ return expectations and risk appetites within cost-effective fee structures. 74% reported improving productivity across the value chain as a main goal, while 64% believe in enhancing operating leverage to improve scale.
• Mutual funds to ETF conversions are gaining client traction: 57% cite the conversion of mutual funds into ETFs as delivering the most client value, underscoring the role of ETFs as an efficient ownership structure for on-exchange assets and a leading investment vehicle in innovation.
• The digital future will evolve gradually: Despite progress in AI and automation, digital transformation remains a long-term journey, with 57% expecting it to take more than five years as asset managers progress towards a digital future. Challenges include data reliability and explainability issues arising from self-learning systems. Asset managers are taking a measured, “learning by doing” approach in driving the current rate of adoption.
• Partnership at scale is becoming a strategic core capability: Outsourcing is now evolving into partnerships at scale, with 44% viewing collaboration with third parties as a means to build scale, enhance capabilities, and share risk by combining unique capabilities. Asset managers also view partnerships as an enabler to accelerate innovation and achieve operational alpha.