Firms Can Fight Fee Compression & Passive Investment


Asset management the last couple of years has
had a lot of pressure, especially around fees and competition from passive
investments. So, analytics are way for asset managers to really show
differentiation with their competitors. And fee compression is a
serious issue. So one of the trends is outsourcing analytic calculations, as
well as even the service of those outsourcing analytic calculations as
well as even the service of those managed for them, and feel “I write
because it’s true” that there’s more going on than in a passive investment,
which just rides with the markets. It’s similar to the answer the previous
question. Because of the tremendous pressure from passive investment, and the
the most sophisticated asset managers are doing a couple of things. One, they’re
adding passive investments to their portfolio so that investors can try
those out, but they’re really piling on the information about the active
management. Justifying why is it that active management is valuable.
You’re paying more for it, what are you getting for that? During
market rises, what you’re getting for it is a nuanced investment style
from the manager. You’re also getting far more information about the
performance attribution, the risk attribution, why they’re taking the best
that they’re taking. At some point, we’re gonna have a market correction. Now no
one knows where, no one knows when, no one knows how big. But at that time, active
managers are gonna be able to show that their active management benefited,
especially the downturn. Risk management as practiced by an active manager
matters during market downturns. Passive investments simply ride the markets so,
you know, if we have another major correction of 20-30 percent, my
money says that active management will not be down nearly that much, and it’s
going to be due to the tremendous analytics that they have, that they
sharing with their investors. Some clients like the idea of self-service. our own use, right? That’s our own
computers, that’s the way we interact with social media, it’s the way
we interact with all of the apps on our phones. We’ve customized it just for
us, it’s personal. On the other hand, other end investors, other end clients, they want that taken care of for them. They
want more of a managed service. They don’t want to have to configure things
in themselves, they want someone else to take care of it. In fact, at StatPro
we offer both for exactly that reason because it’s all about customization, and
for some people, customization is not having to customize, it’s getting someone
else to customize for them. They are actually doing both. As is typical, large asset managers tend to do things on their own. They’ve got the resources,
the staff, and they like to build things themselves. The smaller asset managers see the trends and they may not have the
resources to do it that way, so they outsource. Now, because of the fee
compression, and that was true I’d say you know three three to five years ago,
in the last two or three years we’ve they outsource now because of the fee
compression and that was true I’d say managers outsourcing. Because they
can do it at a more cost effective point, they then customize the outsourcing. There’s an interaction between the outsourcer and the asset manager
or the fund administrator to take the information and present it the way they
want to present it, under their logo, making it look like it’s their product. That’s been a trend. So the outsourcing trend is
actually in both large and small. It’s more full outsourcing among small, and it’s a partial outsourcing among the large. There’s a lot going on. In specific, fixed income attribution is something
that we have been working on for a while, we’re coming out with this year. We have
factor analysis and factor attribution on the risk side for for equity
investments. We have a really exciting new acquisition that we made
last year in UBS Delta that is going to come to market early next year with
really sophisticated fixed income curves. Between fixed income and equity, and
of course all of the cloud computing that we’ve been doing for a
long time, it’s a combination of the right technology and the right
functionality coming to roost at the same time. We’ve grown accustomed to interacting
with technology and customizing it for right technology and the right
functionality coming to roost at the same time.

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