The macro trends that are forcing change in the investment management industry

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Katina Stefanova is CIO and CEO of Marto capital, a New York-based multistrategy asset manager developing customizable investment solutions for institutional clients.

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Power in the The investment management industry is shifting from asset managers to money holders, driven by several major economic, social and political trends.

Taken together, these are irresistible forces encountering a moving object: the traditional structure of the wealth management industry. Here are five key trends affecting the investment management industry.

A new group of underserved customers

Women are expected to control assets of up to $ 30 trillion in the United States in the next three to five years and Millennials $ 20 trillion by 2030. New decision makers expect the industry to reflect a more gender balance and to be more accessible.

Women and millennials tend to invest differently than the older generation of older men. Millennials are both more risk averse and socially conscious when choosing investments. Additionally, as millennials grew up during the financial crisis, they have a negative perception of some of the traditionally dominant financial services companies. The change in investor base values ​​explains the popularity of ESG investing.

Credit: BCG Center for Sensing and Mining the Future

In addition, allocators are becoming less tolerant and unwilling to turn a blind eye to the toxic cultures of sexual harassment and discrimination that have been tolerated by some predominantly male-led investment managers for years. In our view, as investors’ culture and preferences change, so do their investment criteria and tolerance for bad behavior.

VCs are touting our industry as innovative technology investors, but many of us use the same infrastructure tools that we have used over the past 20+ years.

Millennials are “naturally suspicious of authorities, so the traditional financial advisor model won’t work for them,” said Suzanne Ley, former head of financial institutions at Westpac. “They demand complete transparency in all aspects of their life, so hidden / opaque fee structures will not be tolerated. They also have a high propensity to change jobs more often than previous generations, so portability of financial assets will be very important in the future, “she added.

Geopolitical risk leads to capital flight

Political volatility is not good for savers and allocators as it tends to destroy the value of assets. The new Cold War between the US and China is partly ideological, but also largely about technology dominance and cybersecurity.

The new Cold War has only increased capital movements in regions of relative stability. The fear of totalitarian regimes or anarchy in China, Russia, the Middle East and South America lets millions of well-educated and wealthy citizens protect themselves and their nest egg. We are seeing the first net outflows of private capital in emerging markets due to “Risk-off” sentiment and the risk of rising interest rates in the US and Europe. Although the economic outlook in the US is negative and the response to COVID-19 is insufficient, the country remains relatively stable. Together with places like Switzerland, Singapore and Great Britain, the USA remains an attractive safe haven.

Pension funds and asset management funds have great opportunities to expand their geographical presence. While the traditional markets of Europe, the US and Japan are saturated, India, for example, offers the perfect environment for a new wealth management industry to grow. A combination of a strong middle and upper middle class, a well-educated professional class, a free market economy and the expansion of available wealth will drive demand for wealth management products in both institutional and retail sectors.

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