The era of the transaction is dead! Long live the age of collaboration!
That might seem a strange sentiment to express in a President Trump world where the transactional mindset is revered but UK asset owners favour deeper relationships.
A combination of evolution and consolidation is changing the relationship between asset owners and managers. Intermediation is losing its strangle-hold.
That change is being driven by the rising importance of auto-enrolled workplace and open defined benefit schemes as the assets under management in these schemes grow and become the future stores of retirement wealth.
When final salary schemes were in ascendance, regulation meant the relationships between these schemes and managers were controlled by investment consultants. An asset manager’s fortunes lay in whether it would be included in a buy list and how long it remained there.
Cultural change
The combination of the wealth shift from private sector DB to workplace DC and public sector DB combined with advantages given by size and scale has caused a cultural shift.
When a place on the buy list was the way to do business with pension schemes, asset managers espoused a transactional mindset. This intermediation meant they had little ownership of the relationship with the end-client.
The UK is set to become like other jurisdictions where large pension schemes form long-term and deep connections with a handful of asset managers.
It’s a move away from looking for funds and instead forming strategic partnerships which last for an extended period.
With growing master trusts and LGPS pools taking greater control of the relationship with asset managers a new mindset is needed from both asset managers and owners.
Challenges and opportunities
The winners and losers in this new world order will be shaped by the business model of the asset manager. There are four different business models – mega-managers, the muddled-middle, the multi-acquiror and those with marked clarity.
There are opportunities for mega-managers in the new age of collaboration. They can become strategic partners who have the resources to find an expert to answer any question an asset owner might have.
And managers with marked clarity – either boutiques with specialist expertise or those with a clear focus on their approach to sustainability – have a good chance of forming strong relationships with asset owners.
These managers have plenty to offer asset owners in terms of specialist knowledge and innovative thinking – which they can’t find either at other managers or in-house.
The muddled-middle have often been formed through multiple mergers and lack a coherent culture or vision. This lack of clear vision makes it hard for these managers to form deep relationships with asset owners.
Multi-acquirors − which build scale by buying smaller asset managers and offering centralised services − have a less obvious path. It is confusing for the asset owner – do they have a relationship with the corporate or with the individual manager?
The challenging business structures facing both muddled-middle and multi-acquiror managers can be overcome. It will require a clear-eyed management team who is prepared to invest the time and resources into understanding how they can meet the needs of their clients.