New York (Oct. 28, 2003) -- The investment management industry faces sweeping changes over the next three years, as its major players seek growth amid pressure to increase profitability, restore investor confidence and meet regulatory and compliance standards, according to a survey by PricewaterhouseCoopers' Investment Management Industry Group.
The vast majority of U.S. investment managers ranked legal and regulatory issues as their greatest business challenge (83 percent), ahead of market performance and evolving client needs (both at 67 percent). Half of respondents expect up to a 30 percent reduction among funds over the next five years, driven largely by consolidation to cut costs and operational inefficiencies. The report predicts a wave of fund consolidation and outsourcing to further reduce costs, coupled with a shift in focus from global expansion to niche market segmentation.
Profitability is now more important than market share, according to PwC. In contrast to the 1990s when firms focused on gathering assets and geographic expansion, the survey identified a shift toward organic growth, operational efficiencies and profitability in core competencies. Less than one- third of global respondents now have further cross-border aspirations, and one-third of U.S. firms said greater cross-border distribution was not very important or was completely unimportant to their growth strategy over the next 12 months.
Globalization will yield to segmentation, according to the survey, which showed investment managers seeking economies of scale in carefully selected segments of core competencies. As firms strive to excel in niche markets, they’ll fill in the gaps by outsourcing in low-cost jurisdictions and decentralizing distribution to partners with local expertise, PwC said.
"We see an investment management industry emerging in which the leaders will be those that pick an area of focus, seeking scale within well-defined niche areas and relentlessly managing their cost base rather than pursuing geographic scale for the sake of a mythical point at which profitability and efficiency will be realized," said Simon Jeffreys, PwC partner and leader of the firm's Global Investment Management Industry Group.
-- WebCPA staff
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