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2011 Apr/11
Structural Changes in the Global Asset Management Markets and Their Implications for Korea`s Asset Management Industry
Issue & Policy 11-02
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- Research Topic Asset Management/Pension
- Summary
- The financial crisis has affected the global financial markets in many dimensions. The asset management market is no exception. Asset management companies` profit structures have deteriorated because the assets under management (AUM) have decreased. Regardless of a recovery from the crisis, we expect that the global asset management markets will go through structural changes in the near future. We identify six driving forces of the change: stronger regulations, wiser investors, pattern changes in asset markets, competitive pressure from different sectors of the financial industries, the different pace of population aging across countries, and the increasing use of open architecture for distribution channels. These driving forces will lead to several meaningful changes in global asset management markets. First, net cash flows to traditional mutual funds will fluctuate more than pre-crisis levels. Second, competition between the asset management companies will increase in developing markets such as the Asia/Pacific region. Third, investors will become more independent and rational when making investment decisions meaning that asset management companies and distributors will not be able to easily prey on investors to achieve higher profits. Fourth, alternative investment products and passive products will increase their shares in the collective investment products market Fifth, asset management companies’ profit structures will worsen over the long term. Given the expected environmental changes, the Korean asset management companies should actively prepare for these changes. First, they should determine what their business objectives should be and focus on achieving them. It is highly recommended that they determine whether they should be scale players or other types, such as focused players and boutiques. Then they consider strategic M&As, which aim to achieve “multi-products and multi-markets” capabilities, as well as the changes in operations in human resources, distribution channels, target clients, and marketing strategies, etc. Second, the Korean asset management companies should try to reduce their operating costs. Increasing AUM through M&As is the most effective way to reduce costs. However, most asset management companies in Korea will not easily find huge M&A opportunities, so they should try to find other efficient ways to reduce costs. Structural changes in business lines such as slimming product lines and merging different funds may be desirable. Finally, Korean asset management companies should build up investors’ confidence by maximizing investors` utility.