U.S. Firms Turn to Multi-Asset-Class Solutions to Diversify Product Lines

U.S. Firms Turn to Multi-Asset-Class Solutions to Diversify Product Lines

Maintaining positive asset flows during volatile periods demands creative product differentiation and packaging


February 2019, Boston. Continued commoditization is prompting asset managers to seek differentiated strategies and has resulted in a renewed focus on building out multi-asset-class capabilities, says recent research from Cerulli Associates, a global research and consulting firm. One of the biggest challenges facing most asset managers, outside of the largest firms, is specialized innovation. In order to grow, firms must find ways to diversify their business.

“Generating income has been a particular focus as bond yields remain relatively low and shifting client demographics (e.g., retiring Baby Boomers) continue to create demand for income-generating products,” says Brendan Powers, associate director at Cerulli. “To achieve these goals in the coming year, firms are emphasizing the development of multi-asset-class solutions, including both packaged and unpackaged (i.e., models) options, alternative strategies, and environmental, social, and governance (ESG)-related products.”

When asked about their plans to build multi-asset-class offerings, 64% of product executives surveyed tell Cerulli they have already done so and have no plans to expand, while another 32% expect to build them by hiring and training, acquiring, or using subadvisors. Only 5% of respondents indicate they do not plan to offer multi-asset-class capabilities. “Part of this buildout has resulted in ‘packaged’ product in a ’40-Act mutual fund wrapper or exchange-traded fund (ETF), including target-date funds, target-risk funds, tactical allocation funds, and others,” adds Powers.

Another area in which asset managers are applying their multi-asset-class expertise is through the offering of “unpackaged” asset allocation models. “Movement into models is representative of a larger trend in the industry whereby asset managers and distributors are encroaching upon each other’s value chains,” continues Powers. “Amid platform consolidation, the industry is gradually moving toward a distribution landscape in which distributors have fewer but deeper relationships. For asset managers, building upon these strategic partnerships will be imperative.”

“As product development efforts become increasingly complex, it is critical that asset managers find ways to offer differentiated products packaged in the vehicles at the price points demanded by the marketplace while continuing to further strengthen strategic relationships,” Powers explains. “In doing so, they will be best positioned to sustain and grow assets over time.”

These findings and more are from the February 2019 issue of The Cerulli Edge—U.S. Asset and Wealth Management Edition, which delves into the concerns that asset managers, wealth managers, compliance officers, and insurers face when navigating risk in a volatile market environment.

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