The world is changing and to succeed in a reshaped environment with intense pressure on growth and margins, asset managers need to improve operational efficiency and reallocate resources to high growth areas.
Active strategies continue to have a dominant share of assets under management but the proportion of passively managed assets has consistently increased from 19.5% to 22.4% over the last five years.
Significant allocations will be made to smart beta rather than to pure passive strategies. To quote the The Digital Metamorphosis, “In the future, smart beta will pose a substantial threat to traditional active players, potentially even greater than that of the overall shift to passives.”
Alternative asset classes will feature more prominently in institutional and retail portfolios. A wider range of investors, including retail, will be able to access alternative investments as regulators allow regulated vehicles to be more widely distributed.
Asset managers have upped their game to attract and retain these investors and now also see risk management as a means to produce enhanced and more repeatable risk-adjusted returns.
However, investment managers should expect a long road ahead because of the cultural diversity, regional complexities and regulatory challenges present in this market.
China’s growth and its efforts at opening up capital markets raise practical questions for investors about how to manage their exposure in the world’s second largest economy.
The inclusion of China A-shares in the MCSI EM and World indices from June 2018 and inclusion of Chinese bonds in the BBG Aggregate Index in 2019 will provide impetus for investors to consider how best to get exposure to China. The conversation has moved from should we invest in China to how much exposure should we have in China.
