Asset managers are exceeding investor expectations on risk/return and ESG, but overall are falling short of investor demands according to the Investor Alignment Index developed by PwC.
The finding is part of the “Asset and wealth management revolution: Investor Perspectives - rethinking purpose and performance” report. The survey is based on PwC’s point of view and the Investor Alignment Index developed by PwC, with responses from 750 institutional investors and 10,000 retail investors around the world.
To determine what investors care about most, PwC created an Investor Alignment Index1 which measures the gap between how satisfied investors are with asset managers’ performance on each factor (or dimension/ area) compared to how important that factor is to them. The index showed that asset managers overall fell slightly short of investor expectations (just under zero on a scale from -9 to 9). This means there is ample scope for competitive managers to improve and win more business where they can exceed expectations!
Asset managers were able to exceed investors’ expectations, both retail and institutional, on the crucial dimensions of risk/return and ESG. These were also among the top three most important dimensions for investors globally. Managers just about exceeded expectations when it came to relationships, however retail investors noted that managers need to do more for them in this respect. Technology can help with some, but not all, of the solution here.
The index showed that alignment on fees is especially low on the retail side, whereas on the institutional investors side, the greatest misalignment is on operations where investors are concerned about the strength of certain asset managers when it comes to technology, reporting and risk management.
The research underlines the extent to which investors no longer see financial return in isolation from other factors. Investors surveyed are focused on the macroeconomic and political environment, as well as the risk-return trade off.
Many investors want Environmental, Social and Governance (ESG) to be integrated into funds because they believe it can generate superior financial performance by mitigating reputational, operational and financial risks. PwC believes that overall ESG mutual fund assets are set to grow at an 8.5% compound annual growth rate (CAGR) between 2017 and 2025, to reach US$2.08tn.
Our research highlights that ESG investing is the number three priority of investors surveyed, as a general group, and outranks fees. The research found that just as corporations’ ESG records are being scrutinised by analysts and rating agencies, it’s now a fundamental priority for sophisticated investors across the globe.
“As clients continue to align their personal interests and values with how they invest their money, ESG investing is now a must have, not a nice to have option when constructing an investor’s portfolio. In addition, as investor expectations continue to evolve, it's equally important to embrace transformation as investors continue to expect more from AWM businesses.” said Olwyn Alexander, Global Asset and Wealth Management Leader.
Operational weakness opens the door to the Big Tech and fintech entrants who might seek to partner with AWM firms or make direct plays. And as technologies such as artificial intelligence (AI) and the Internet of Things (IoT) reshape investors’ expectations, these possibilities will only increase2. Targeted alliances, team or smaller firm acquisitions can help to acquire the talent and tech capabilities needed to deliver on investors’ expectations.
Transforming your values, performance and operations to keep pace with investor expectations demands a major shift. Our research shows that there are two key foundations for reorienting a business.
Redefine your purpose. Companies can no longer sit on the fence in the face of the issues confronting the world. Controlling what we estimate to be some US$100tn in assets worldwide, asset managers can, and should, be part of the solution. This is a fundamental question of how you should think about your purpose. Redefining your purpose and living by these values need to be C-suite imperatives and built into the strategy and underlying mission of your business.
Determine what capabilities you need. Successful AWM firms must have a good data and talent strategy, scalable operations and a laser focus on the customer experience. As market pressure increases, these capabilities are going to be even more critical.
Getting up to speed starts with a move towards single or integrated infrastructures and centralised data management systems. Outsourcing is emerging as a viable solution for a number of functions. Beyond being less expensive than in-house development, services have the scale and resources to constantly update their technology. Talent management and upskilling are key to any successful business facing the future.
Olwyn Alexander concluded: “Sustainable AWM firms need to have the digital skills capable of thinking beyond the traditional with an ability to turn data into practical business insights. Digital transformation is both empowering and disorientating for the workforce, so it’s important to set out a clear vision for the future, provide incentives for upskilling and bring innovation out from the fringes and into the core of your business.”
Notes to editors:
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