Survey data released by RBC Dexia and Accenture shows a majority of fund managers expect their company’s return on equity to remain below pre-crisis levels, and many are placing more emphasis on cost reduction and product innovation initiatives.
Over half of respondents – 59% – expect a return on equity of 15% or less this year; 14% of this group expect it to be under 10%. Prior to the 2008 financial crisis the average return for the funds managed by survey participants was 20%.
“Turmoil in the global financial markets has deeply affected the profitability of the investment management industry,” said Rob Wright, global head, product and client segments, RBC Dexia. “Falling market prices and a general move away from high margin products to highly liquid, low-fee products have driven down revenues. Our research suggests that fund managers are looking to solutions that allow them to concentrate on their core competencies and provide access to the latest technology necessary to securing front office performance.”
The survey, which involved face-to-face and online interviews with approximately 100 fund managers at 80 companies in the United Kingdom, North America, Europe, Australia and the Middle East, also showed a higher frequency of outsourcing among asset managers – a measure aimed at lowering costs, improving service quality and supporting more advanced products to achieve growth.
“The backdrop of low-equity returns and pressure on fees and revenues have made efficient operations a priority for fund managers,” according to Pascal Denis, a senior executive in Accenture’s Financial Services group and managing director of the company’s operations in Luxembourg. “At the same time, their clients are demanding new financial products which have greater clarity of risks, and they would also like to see risks mitigated. This means that products are complex, but in a different way than before the credit crisis.”
“All of this is happening in combination with clients expecting to pay lower fees for financial products. Having efficient, scalable operations and access to the new technologies will be a key competitive factor for any fund manager in the years ahead,” added Denis.
An overwhelming majority – 77% – of respondents said they believe the industry will see an increase in outsourcing over the next three years, ranging from fund accounting and custody to back-office technology and risk management. Though cost was identified as an important consideration, respondents also stressed outsourcing is undertaken to deliver operational effectiveness.
“Our research indicates that certain outsourcing strategies could lead to cost savings of up to 20-25% for some managers. This trend will appeal to many funds, which are looking to increase operational efficiency and are urgently looking to grow their businesses by launching new and innovative products faster or by expanding into new geographies,” RBC Dexia’s Wright says.