Concerns over liquidity and capital protection are driving changes to asset management business models, find CREATE-Research, Citi Global Transaction Services and Principal Global Investors.

Exploiting uncertainty in investment markets aims to provide an early indication of how asset managers worldwide are adapting to the post credit crisis environment, what the emergent business models will focus on, and where growth will come from over the next three years.

Asset growth is expected to be dominated by significant rebalancing of existing allocations, with the volume of new money in motion remaining small. Only a third of assets are expected to account for fresh inflows from Sovereign Wealth Funds, national pension funds/central bank reserve funds and defined benefit (DB) and defined contribution (DC) plans. The remainder will be switched assets from DC plans helped by the closer of DB plans, outsourced insurance assets and wholesale packagers.

The report says that the result will be intensified competition as money moves between geographic regions, asset classes and client segments.

Enhanced capabilities in asset allocation (54 per cent), absolute return (21 per cent) and product innovation (53 per cent) are ways asset managers are already improving their product proposition.

“The credit crisis is in the rear view mirror,” explained Prof. Amin Rajan, CEO of CREATE-Research, and author of the study. “But its after-shocks continue to rattle the markets and a thick fog of uncertainty is presiding over the competitive investment landscape. The small group of asset managers who suffered least had clear financial and non-financial alignment of interests with their respective clients, backed by operational excellence. As a result, asset managers are turning the spotlight on their own offering. They are attacking inefficiencies that have long tended to conspire against the interests of their clients.”

Multi-boutiques are predicted to become the dominant operating model among medium and large asset managers over the next ten years, and currently represent seven per cent (independent boutiques) and 28 per cent (integrated boutiques) of the market.

Fiduciary overlay will also differentiate the winners from the losers, the report said. A fiduciary overlay, featuring consistent returns, a deep talent pool, exceptional service, a value-for-money fee structure and a state of the art infrastructure will be necessary for success. The overlay, CREATE said, seeks a three-way financial and non-financial alignment between asset managers and their clients, asset managers and their professionals, and their professionals and clients.

Principal Global Investors Europe CEO, Nick Lyster, added: “It is apparent that the winning business model continues to be the one that puts clients first. In response, asset managers are targeting improvements which seek to position them as trusted advisers to their clients. A fiduciary overlay that overcomes behavioural biases, offers meritocratic incentives in which gains and pains are shared and develops common investment beliefs and time horizons will be critical. This model can already be seen in multi-boutique structures, which it is anticipated, will become the dominant organisational structure.

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