A recent survey of global financial institutions by State Street has shown some revealing trends – Country Head of the Luxembourg firm Eduardo Gramuglia has the details
The past year has been a momentous one for the European asset management industry, as the market crisis and recession driven by the pandemic forced unprecedented changes on firms’ operating models.
The immediate consequences of the situation included entire workforces being forced to work from home with little or no preparation time, as well as an equally sudden capital markets sell-off creating significant global liquidity shortages.
In April, around the trough of the bear market, State Street conducted research into asset managers’ performance during this crisis, from the perspective of their institutional clients and their investment advisers, 1 which found high levels of satisfaction with their immediate response, with European managers scoring highly.
Once the immediate fire-fighting was done, we reflected on some specific questions. How will the changes brought about by Covid-19 affect asset management operations in the longer term? What ways of doing things differently will stick and what will go back to how it was pre-Covid? What areas of transformation in operational investment will be accelerated as a result of the experiences of 2020, and what has been shown to be less important?
This autumn, State Street conducted a survey of more than 600 investment institutions worldwide, 2 including 91 European asset management organisations, asking them exactly these questions.
Overall, there was a theme of fighting back and consolidation in the top line results. The shadow of Covid-19 hung over the fact that European asset managers were focused on getting back lost returns in their portfolios (“improve investment performance” was their “top growth objective”, chosen by 23% and up from third place in an equivalent survey last year).
In addition, 45% said they were likely to engage in a merger or acquisition deal in the next 12 months, a long-standing trend in the asset management industry in Europe and beyond, but also an indication that the scale and diversification that M&A brings are advantages in a difficult market and economic environment.
Confidence among European asset managers in meeting their growth targets over the next 12 months was lower this year (52%) than last (61%), but not as low as 2018, when it seemed that a Brexit deal acceptable to the European Union and a majority of UK members of parliament was not possible.
On a five-year horizon, European managers were the most optimistic globally, with 82% confident of meeting their growth goals. However, the potential for Covid-19 to continue to threaten their markets in the longer-term was recognised, with post-Covid taxation to pay off government expenditure incurred during the crisis the top perceived threat to growth (38% of European asset managers placed it in their top three).
The asset management industry was also alert to the potential for governments to require them to “locate/conduct more of their activities onshore” (60% of European managers said this was “likely”) as part of a wider post-recessionary focus on domestic employment and economic activity.
One theme that came through strongly in the research was that firms’ technology and operating systems handled the unprecedented challenges of the crisis better than expected.
Nearly half (48%) of European asset managers said the effectiveness of their staff working from home en masse was a positive outcome of the crisis, while the same number said it had helped them create a blueprint for faster executive decision-making and large scale/short notice project implementation.
A further 43% said it had raised organisational productivity and the same number said it would speed up digital distribution and client engagement strategies.
Various elements of digital transformation registered as the areas most increased in priority as a result of the Covid-19 crisis. Among European asset managers, 37% said cyber security was a top three for prioritisation, while data analysis technology – tools for investment analytics (32%), liquidity (30%) and risk (29%) – also scored highly.
There were also lessons learnt from the immediate impact of the crisis. Were a second crisis scenario to happen, based on a resurgence of Covid-19, hiring (27%), expansion into new markets (27%), and ESG (26%) would be the first things to be scaled back, while tech-focused areas, specifically data migration to the cloud (33%), and front office digital transformation (29%), were top choices for acceleration.
Lastly, perhaps one of the most surprising results of the survey was the extent to which working from home is expected to become the new normal. More than half (55%) of the executives surveyed at European asset management firms anticipated “all or most” of their staff continuing to work remotely from now on.
In summary, the impact of Covid-19 on Europe’s asset management industry has been a mixture of confirming the need to accelerate existing projects – in particular digital transformation and M&A – along with some new threats (to cross border operating models) and a lasting move to remote working.
Further information
[1] State Street and CoreData Research conducted an online survey with 640 investors – including Institutional investors and gatekeepers at pension funds, endowments and foundations, insurance companies, sovereign wealth funds and other institutions managing assets – around the world in April 2020.
[2] State Street engaged Longitude Research to field this global survey during September and October 2020. The 618 respondents were composed of senior, decision making executives at asset managers, pension funds, insurance companies and other asset owners in 24 countries.
