Global Investment Industry Facing 'Enormous' Growth Challenges

by Carla Johnson, Investors Offshore.com

04 July 2006

While investment managers remain optimistic about future revenue growth, the investment management industry will face "enormous challenges" globally in investment performance, distribution and the recruitment and retention of talent over the next few years, according to a report by PricewaterhouseCoopers, the professional services firm.

More than half of the 81 investment management organisations polled in PwC's 2006 Global Investment Management Survey, representing aggregate assets under management of $9 trillion, expected that their revenues will grow by 20% or more over three years.

However, Simon Jeffreys, global investment management and real estate leader, PricewaterhouseCoopers LLP, said that the survey shows evolving investor demands, weak internal controls and risk assessment strategies, and the disruption to existing distribution channels will present a demanding environment over the next few years. What's more, he noted that all this could occur against the backdrop of rising interest rates and volatile markets.

“In five years time the asset management industry will look very different," Mr Jeffreys predicted.

"Firms are in need of visionary leaderships with clear perceptions of where competitive advantages lie. This need is greatest in the middle ground, among the traditional active managers," he added.

When asked by PwC what they would be doing to improve performance over three years, respondents commonly mentioned recruiting and retaining the best employees, but 21% cited recruiting, retaining and incentivising talent as one of the biggest challenges they faced.

The survey also highlighted the fact that the rise of increasingly sophisticated investment products, such as hedge funds, private equity and real estate, will increase the demand for talented risk managers.

Surprisingly, 91% of survey respondents considered that they did not have appropriate internal controls in place to adequately manage risk, and 89% had not completed a comprehensive assessment of risk.

The survey revealed that outsourcing will continue to play a big role as asset management firms focus on core competencies. However, respondents reported that while they were keen to continue outsourcing back office functions, they were more cautious about outsourcing functions which involved dealing directly with customers.

Regulatory changes were seen by nearly a quarter of survey respondents as the greatest and most immediate challenge that they faced. The number of new regulatory requirements being introduced has created a significant workload for firms and consequently, has drained resources.

Furthermore, with tax authorities worldwide clamping down on tax planning, the survey found that a significant proportion of respondents would also be playing close attention to the management of tax risk over the next tree years.

Mr Jeffreys concluded by stating that the investment industry's future winners will be those that "focus on and reinforce their core competencies, outsource or sell non-core operations and have the flexibility to seize opportunities”.

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