The evolution of multi-asset solutions: From cost center to profit engine

The evolution of multi-asset solutions: From cost center to profit engine

The transformation of asset managers over the past decade has often focused on headline-grabbing trends like the rise of private and illiquid assets, active ETFs, passive and systematic strategies, and crypto assets. However a more subtle yet equally impactful shift has taken place: the rise of multi-asset solutions.
Author: Jacobi – www.jacobistrategies.com

The rise of multi-asset solutions

With fee erosion impacting traditional actively managed, single-asset-class offerings, asset managers have invested more in multi-asset capabilities. This has extended beyond mutual fund products to include bespoke mandates, model portfolios, and advisory services.

More than a decade ago multi-asset solutions teams began to emerge as asset managers recognised the value of strategic client collaboration and importance of objective-based portfolio construction.

These teams often served institutional clients in Europe by designing bespoke mandates, while in the US, they targeted wealth managers with model portfolios tailored to investment advisors. More recently, the focus has broadened to delivering various types of advisory services, bespoke mandates and overlays, and more directly supporting the sales process, such as for positioning new or existing funds.

 

Getting commercial – From cost center to profit driver

As margins compress and inefficient operating models are scrutinised, multi-asset solutions teams are now under pressure to be more commercially-focused – both in terms of revenue contribution and cost control.

 

In search of revenues – Both direct and indirect

Generating revenue directly is an obvious aspiration. For example, more solutions teams have begun ‘running money’ by offering Outsourced Chief Investment Officer (OCIO) and fiduciary management services for institutional clients, or managed portfolio services (model portfolios) in wealth management. In this respect, the distinction between solutions and traditional multi-asset fund management teams has blurred.

 

Another source of direct revenue is (paid) research and advisory. For instance, asset allocation research, tactical insights, and investment policy reviews. This is complicated by the perception of conflicts, competition with asset consultants and difficulty of charging for something that many competitors provide freely.

 

More subtle are the revenues that may be attributed to solutions teams indirectly. For example, providing insight in areas such as strategic and dynamic asset allocation, capital market estimates, and thematic reports. This enables asset managers to be a strategic partner for clients on their total portfolios and enhance client-stickiness, rather than being a narrow product provider. This may extend into more formalised partnerships that involve extensive sharing of intellectual property.

 

A newer and growing trend are solutions teams directly bolstering the sales process with insights, such as helping to promote an asset manager’s range of funds and capabilities. For example, portfolio construction tools for client-facing professionals, or even the client directly, that position a fund in the context of its value-add to a client’s total portfolio.

 

Doing more with less – The need to better scale and connect

The other side to being more commercial is a heightened focus on cost and scale – especially important given the business pressures on asset managers today.

 

Multi-asset solutions teams perform a variety of critical but complex tasks, starting with strategic portfolio design that looks across all asset classes. This often includes stochastic simulations, portfolio optimisation, running ex-ante and ex post analytics, stress and scenario analysis, and asset-liability management. Tasks may even extend into tactical allocation, manager selection, overlay management, and portfolio and market monitoring.

 

These processes are notoriously hard to scale. The ideal model is to use and connect the same building blocks to serve a diverse client base: institutional clients like defined benefit pension schemes, defined contribution providers, sovereign wealth funds, endowments, and insurers, as well as wealth management clients such as financial advisor firms, family offices, private banks, and integrated wealth managers.

 

To maximise their impact, solutions teams must also add scale in the way they engage with internal and external clients. For instance, research and insights delivered solely as static reports have become out-dated as digital tooling takes hold. Meanwhile, direct conversations with clients can no longer anchor on one-way presentations and pre-prepared analytics, but rather two-way interaction fostered by interactivity.

 

Focus, scale and connect

To industrialise their building blocks and bring expertise to clients, solutions teams often relied on locally-coded tools and in-house technology builds. This was well-justified as many are proprietary in nature and help the asset manager to distinguish itself from the competition.

 

But with margins compressing across the industry, in-house approaches are under intense scrutiny and more cost-effective approaches are needed. The alternative is solutions teams trimming the scope of services they provide.

 

To thrive, multi-asset solutions teams must prioritise where they concentrate their efforts to support revenue growth and maximise scale. Teams must transition from fragmented in-house tools to a more cohesive, efficient operating model to add scale. This can maximise their impact as the building blocks to their processes are often common irrespective of the type and location of the client.

 

By sharpening both their direct and indirect contributions to revenues, multi-asset solutions teams are no longer just a cost to bear. Instead, they are evolving into indispensable engines of growth, profitability, and client retention for asset managers in an increasingly competitive landscape.

 

Jacobi’s market-leading multi-asset software is used by top-tier asset managers, wealth managers, asset owners and investment consultants across the globe. For more information, visit: www.jacobistrategies.com/

 

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