The number of funds in the investment industry needs reducing and more effort needs to be put into making core funds work better, FundForum delegates heard at a discussion panel made up of chief executives.
The Business Leaders Forum featured some of the industry's leading lights, including Euan Munro, the chief executive of Aviva Investors, and Andreas Utermann, CEO of Allianz Global Investors.
Munro spoke about overcrowding in the funds market and stated that the industry would benefit significantly from a sizeable reduction in the number of funds.
“When I took over we had 3,000 funds. Now, we've got about half that, but I still have no clue why we need so many different strategies – there will be further pruning," he said.
“For too long, our industry has put too much effort into product innovation and expansion instead of thinking about how we make our core funds the best they can be, and streamlining to ensure we're focussed on critical client needs."
The question of what should be cut may be made easier by the rise of passive investment vehicles. Jim McCaughan, chief executive of Principal Global Investors, said passive performance in some markets would render active funds surplus to requirements.
"At this point, it's essentially been proven that the overwhelming majority of active managers cannot outperform very efficient markets, so I envisage passives fully supplanting managers in certain areas in the near future - particularly large cap, core strategies," he said.
Cutting down on non-essential funds might free up managers to focus on achieving better returns, and crafting a more personalised client proposition, in turn potentially alleviating fee pressure. Jamie Hammond, UK CEO of AllianceBernstein, noted an increasing client focus on performance net-of-fees, and a greater willingness to pay premium prices if "genuine alpha" was achieved.
Andreas Utermann, CEO and chief investment officer of Allianz Global Investors, called for firms to get "ruthless" at reducing platform costs, move towards more flexible fee models, and accept that revenue streams would be increasingly volatile in future.
Despite these challenges, the panel remained confident of the industry's ability to prosper. Robert Higginbotham, president, T. Rowe Price, said the rising importance of retirement income represented a huge opportunity for asset managers.
“One of the features facing society is funding for retirement – the world is catastrophically underfunded today," he said.
"We have to engage now as we never have before, and that will test us as an industry – but it’s also a real opportunity."
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