January 2012
Institutional investors asset outsourcing gaining momentum
Boards are becoming fatigued, capital markets have become complex and few consultants seem to possess the skills and people to guide clients in these uncharted investment waters. Over the past three years investors have been reviewing their management options as they deal with spending policies, unfunded pensions and poor performance. With few options it is clear for many institutional investors that change is inevitable. Those with assets of under one billion seem to be attracted to considering a change as they often have limited access to new investment ideas or programs from Wall Street. What is also interesting about the growth in outsourcing from IMI surveys is that 20% of institutions over one billion also have limited resources so they too are interested in outsourcing. While there will be a growing number of firms offering outsourcing in the years to come, today there are some sixty outsourcing choices among consultants and asset managers. For a complete list contact IMI at 203-622-5851.
Sales and marketing budgets on the rise
An IMI survey conducted in late 2011 among asset management firms indicates over 75% are planning budget increases for sales and marketing in 2012. Why the change? First and foremost is the increase in the competition. Second, the contraction of investor staffs over the past three years and third is the limited time consultants have available for manager meetings. Perhaps a fourth is the increase in asset management products and the influx of alternative managers seeking the attention of investors. When we turn to sales budgets of asset management firms, if truth be told, the budgets are miniscule (less than 2% of assets). For years asset management firms have been growing assets with little dollars spent on sales and marketing. With competition heating up and marketing budgets expanding, it’s understandable that there are going to be changes in the global asset management environment. When managers are receiving $250,000 to $800,000 per clients in annual fees, spending approximately $50,000 to obtain these clients is a no-brainer.
Wealthy families becoming hot commodity with managers in 2012
Why are Wall St. firms competing and paying outrageous bonuses for financial advisory teams? That’s where the money is and who can resist the “gold” rush? One has to look no further than at the reported earnings of private wealth departments of banks. Greenwich,CT with its wealthy families has seen growing numbers of private wealth banks open their doors, as they believe there is gold to be found in this New York bedroom community. While much of the wealth is one to two generations, there is also significant inherited wealth residing in many mega-mansions of 10,000 square feet and more. Add to these families entertainment personalities, famous athletes and corporate executives and you can see why banks and other investment firms are falling all over themselves to gain access to much of this ultra wealth. What’s also attracting Wall Street is that few seem to use consultants and they can make investment management decisions rather quickly, that is, once they trust the manager. Another attraction to this group is that asset management fees are also significantly higher than institutional fees.
Consultants are the key to getting into searches
In a recent IMI telephone survey, with sales and marketing executives during the Christmas holiday, consultants came up as the key to building new clients in 2012. Many managers indicated they would be expanding their sales budgets toward consultants and their research departments. Having consultant trust and strong consultant relationships were considered keys to getting into searches. While databases have been thought to be an important marketing tool, many managers complained that seldom have their firms been selected for searches as a result of standing out in any of the generally accepted databases. In fact, there was strong sentiment that consultants use them more as window-dressing rather than serving as a search resource. Managers also felt consultants ask good review questions which can often propel their firms into searches overlooked by the consultant research teams. Finally, in 2012 look for institutional investors to expand their asset diversification which will most likely result in an increase in manger searches.
