Lost in the middle?
In asset management, it is often thought that the ends are the place to be – big or boutique. Mid-sized asset managers don’t quite benefit from the economies of scale enjoyed by the really big and have ‘grown out’ of the specialist focus enjoyed by boutiques.
As a manager adds more investment capabilities and begins international distribution, the volume of client requests for fund information grows rapidly. Asset managers must re-engineer the processes and platforms used to support client requests without injecting too much fixed cost too soon. One such manager told us today “we can’t just throw people at the problems”. It is a difficult balancing act.
Scale creates efficiencies
Played right, small firms get the benefits of the moniker ‘boutique’. It denotes private ownership with a specialist and unique investment proposition. Very big firms have ample product diversification, a powerful brand, well-tuned distribution and the all important scale.
Managers in the middle share some traits with their smaller and larger peers but must deal with special challenges. They are too big to be a specialist and enjoy the interest and attention of investors seeking strategies managed by ‘independent’ thinkers. They are too small for the benefits of size and brand.
Challenged to promote just what they stand for, more than anything they seek scalability. This is the difference between ’standing still’ and ‘going places’. Mid-sized managers must grow to find efficiencies.
And it is not the investment elements of an asset management company’s business that suffer due to lack of scale. Investment teams can remain small as assets soar. More clients mean more servicing, particularly those who seek detailed information not just once but as part of their ongoing monitoring and due diligence processes.
These requests put a strain on the front and middle offices to provide ever-deeper levels of detailed information. Growing sophistication of investors, regulatory demands and competition is making this increasingly clear. While these challenges are true across the entire asset management industry, mid-sized asset managers need to find efficient ways to support their growth ambitions– particularly through the standardisation of information flow and the smart use of digital.
Standardisation and digitisation achieve two things. First, they ensure that the high value nature of client engagement is responsive to growing demands for information. Second, it ensures that managers don’t focus resources on tasks that are lower value, repetitive and will never reach scale.
We think a prime example of achievable efficiencies are those in due diligence questionnaires – a process that has historically been resource intensive and not scalable. Along with collaborative and innovative clients, Door has re-imagined the flow of information for fund due diligence. Moving away from the cumbersome exchange of lengthy MS Excel or Word documents through email, Door is providing users a fast, efficient and scalable way to meet client demands.
For those who recognise the benefits of standardisation and the power of digital, Door presents an opportunity to maximise the human insight and decision making that our industry and its clients demand. It also allows smaller asset managers to meet their wider product and distribution ambitions without many of the associated fixed costs.
- Boutiques
