Is Anyone Bullish on the Future of Asset Management???
I'm a sr equity analyst at a large AM w/ >10 yrs of experience with a potential path to PM someday... basically mid-career. I've managed my career path really well, but find myself looking at the future of AM wondering how much opportunity there will be for fundamental discretionary equity investors. I'm really hoping for some thoughts, particularly from those already in the industry.
From what I can see the AM industry (particularly US/Europe large cap) has been under tremendous pressure... AUM keeps moving into passive products and fee pressure grows year by year. One could even argue that the only reason the industry hasn't had a huge shakeout is because we've had an unprecedented historically long bull market relieving the pressure of the exiting AUM.
So, where do things go from here? Here's my guess...
Institutional Assets - fees will continue to compress w/ large institutions paying 45/35/25bps, maybe going all the way to 15bps. Large AM firms will have a complete range of products, all geographies, all style boxes, all asset classes, all styles... even esoteric things like thematic and ESG, etc etc. They'll trade lower fees for higher share of wallet. Rock star PM's will be a thing of the past. They'll be replaced by multi-PM/analyst teams so that no individual person becomes too important to the product. So, comp will come down. $1m+ paydays even for PM's will become increasingly rare. Firms will leverage large pools of central research, where the analysts are nameless. It'll be a fixed cost that can be leveraged. Comp there will come down too. The power will shift away from the investment staff... owning the sales relationship will increase in value. It's hard to envision a scenario where comp does anything but trickle lower for the investment side.
HNW Assets - the double layers of fees will (and probably should) eventually go away... why pay for advice (from your HNW advisor) and a fee for a fund... it'll be bundled / vertically integrated is my guess. You pay 1% for the advice and get free or nearly-free access to that firm's funds. Like above, the role of the people choosing the equities/credit to invest in goes down and the role of the people who own the relationships stays strong/continues to grow.
Large, full-scale AM firms will try to build out both sides of the business. Institutional has big pools of capital and HNW is higher fee and very sticky AUM.
On both sides, the value of stockpicking is becoming commoditized and the investment management function will be viewed as a fixed cost that needs to get leveraged. Firms will have a large swath of funds and if one underperforms the relationship owner will shift assets out of the underperforming fund into another fund at the firm. There'll be so many funds there'll always be something outperforming.
As a long-term investor, I spend a lot of time thinking about where a business is going to be in 5-10 years and how the business model is going to evolve. When I look at AM through that lens, it's not particularly encouraging. It's an industry going through disruption and a long tail event like a bad bear market could really escalate a huge thinning of the herd.
So, when I think about this relative to my career it's a really hard decision... I'm on a great path in AM, w/ potential to get to PM someday... but if I leave now I could get a jumpstart on a great career path outside of AM in a business that's under less secular pressure. I have two friends in my age/experience cohort who left AM years ago and are CFO's now. So, it's tempting to flirt with the idea of leaving proactively.
Does anyone have a different view? Am I too cynical? Is anyone bullish on the long-term outlook for AM??? What am I missing?