Managers struggle to work out which products are profitable

market_index_410Investment managers are trying to expand into new regions while also struggling to work out which of their products are profitable, and this is against a backdrop of falling business confidence.

Product profitability - along with regulatory change and data management - was one of the top three priorities in the year ahead for a group of investment management firms with £5.4 trillion (€6.07 trillion) of assets under management that took part in a poll last week.

But why is it so difficult to understand the profitability of a product?

John Robertshaw, a principal at consultancy firm Investit, said that while revenue is fairly simple to allocate to products and clients, investment firms are not good at allocating cost.

“This is partly because tracing operational activity back to the client is difficult. It is also because, frankly, a lot of people in the firm do not really want to know.”

The poll was conducted at the bi-annual Investit Intelligence Conference.

Robertshaw believes that investment management firms will need to do a lot more work to understand costs. As margins come down, says Robertshaw, owners will want to know where profits come from and where revenue is going. He says his work with finance teams suggests this will be “a permanent change, not a quick project everyone forgets when markets rebound”.

The poll also showed that the three priorities given by the investment managers had not changed. The same answers were given at the previous Investit conference in January.

However, what had changed was business confidence. Senior executives from the investment management firms that were polled (along with four asset servicing firms representing £32.8 trillion) were less confident of the business environment than they were in January when 97% of respondents expressed confidence for the year ahead.

Last week’s conference was attended by 70 delegates from 21 investment management firms.

In January, 97% of respondents to the poll expressed confidence about the year ahead. Last week that figure had dropped to 77%. Looking further ahead, 53% expected confidence among investment management businesses to weaken rather than strengthen.

©2011 funds europe