Asset management in emerging markets - Roland Berger Strategy ...

Roland Berger Strategy ConsultantscontentAsset ManagementNew entrant banks startfrom scratchEstablished Brand& DistributionEstablished asset managersshould focus on a tailoredofferingEstablished Brand& Distribution1 32 4Investment Expertise1 32 4Investment Expertiseretention over time. This means that asset managers must not only aim to maximize theirinflows but also to keep the assets in-house over time and avoid attrition (i.e. outflows) sothat they can earn management fees over the long term. Retail sales advisors, therefore,should be incentivized to foster client loyalty and avoid attrition.2 – New entrant banks or Independent Financial Advisers (IFAs)With little or no brand recognition, no distribution network nor proven investment expertise,new entrants can tap asset management opportunities by first either developing theirbrands/distribution or their investment expertise.In the first scenario, new entrants to the Middle East can distribute third-party productsthrough commission-based platforms or white-label distribution agreements in order todevelop their distribution and brand positioning. A well-defined and fairly focused valueproposition for each segment will lure new clients away from existing players. Since mostretail onshore assets under management in the Middle East are currently held in captivebank-owned funds and other products, clients can represent more value through a focusedoffering. Banks should also be able to provide access to key flagship funds from renownedasset managers. Most retail banking clients in the region are restricted to owning theirbank's funds, so offering access to well-known regional and global flagship funds wouldprovide investors with a best-in-class offering from a single provider. Attractive launchpromotions or price discounts will also be helpful. With current distribution margins athigher levels than in developed markets, Middle Eastern new entrants can afford to provideattractive financial incentives to lure new clients. In any case, the asset managementplatform should be seamlessly interwoven with the rest of the customer offering.Operational efficiency will be key to maximizing sales. Organizations which are able tointegrate their asset management platform within their current e-platform will be bestpositioned to take advantage of direct/e-banking as it gains a hold across the Middle East.The second scenario calls for in-house investment expertise. Entrants can either acquireor build an investment team through targeted hiring. The key is an ability to attract andretain outstanding investment talent. This may be trickier in the Middle East, where thelocation of the investment team will play a critical role in a firm's ability to attract the rightpeople. Along with location, a well-defined compensation structure and long-term incentiveschemes will be what attracts and retains an investment team. Staying in the market –with the consistency of a strong team – is what will build a track record that can later competehead-to-head with existing players. As with other growing markets, entrants need toview their entrance as a long-term, sustained investment.3 – Established incumbent asset managersEstablished asset managers need to reinforce their existing value proposition to fend offnew entrants. They can achieve this by either building significant scale or by further deepeningtheir investment expertise in certain investment areas. Building scale involves anumber of measures. A broad and well-established distribution network, potentially using amix of captive and third-party channels, can reach large numbers of potential clients witheasy and convenient products. But rather than trying to compete with a "one size fits all"approach, a tailored offering should be available for more wealthy and demanding clients,and standard offerings kept to the lower tiers of the middle market segment. Furthermore,critical mass in assets under management will allow asset managers to lower operatingfees and better compete on pricing. When a player reaches a certain scale, it can lower unitcosts and even potentially pass on some cost advantages to retail investors or third-partydistribution channels, if and when needed. To further leverage scale, managers should alsoseek out optimization options for middle and back office operations and processes. A properlyincentivized sales force will further support asset retention. This might include notonly upfront commission schemes but deferred compensation schemes based on assetsunder management levels and net flows over time.Deepening investment expertise, in the case of incumbents, first implies assessing theexpertise currently available, and then the areas for improvement. Implementation of thesubsequent changes should be documented and shared with clients, which will lead toproactive marketing of the new or improved expertise range. Next, the compensation structurein the front office should be competitive. This means an employee value proposition,attractive remuneration packages that reward outperformers, and clear developmentpaths for "superstars". Performance-based incentives for the front office staff and the firmas a whole should be aligned. And finally, the asset manager should have a proven and sufficienttrack record of adding value. This must be built up over time. Initially, upfront investmentswill have to be made, and payback will be in the mid-term. The asset manager thereforeneeds a "stay the course" attitude.4 – Leading global asset managersMultinational asset managers looking to enter the Middle Eastern retail market can offerinvestors trusted and proven products that are managed by world-class investmentmanagers with long-term track records. However, their expansion of products and salesactivities in the region should be gradual, and such players should avoid the temptation tobuild a fully-fledged branch network or local middle or back offices. Such moves would notonly be costly; they would reduce economies of scale and thus potentially lead to largeproblems down the line. Leading global asset managers should therefore focus on a selectnumber of flagship products with sufficient margins, offer local variations (e.g. Shariacompliantvariations), partner with renowned retail brands and distribution networks, andprovide on-the-ground sales training and support.EMERGING MARKETS, EMERGING CHANCESThe Middle East is one of several attractive and emerging markets that asset managerscan tap for expansion opportunities. As with any market entry, success relies on welldefinedgo-to-market strategies that address local specifics. The flux of these emergingmarkets, especially given their lack of proprietary distribution channels for foreignentrants, demands airtight alignment between the targeted segments and the assetmanager’s own distribution channels and product offerings. With properly aligned businessmodels and entry strategies, asset managers can seize the new distribution and salesopportunities arising in these emerging economies. The Middle East is an apt model forasset managers looking at expansion, especially beyond the traditional asset geographies.Leading global asset managersshould expand activities graduallyEstablished Brand& Distribution1 32 4Investment ExpertiseIF YOU HAVE ANY QUESTIONS,PLEASE FEEL FREE TO CONTACT US:Dr. Frank Heideloff, Partner+49 40 37631 - 4448frank_heideloff@de.rolandberger.comMatthias Hübner, Principal+49 89 9230 - 8910matthias_huebner@de.rolandberger.comJoe Nakhle, Project Manager+973 17 567 - 994joe_nakhle@bh.rolandberger.comthink:act CONTENT…ditors:Prof. Dr. Burkhard Schwenker, Dr. Martin C. WittigProject management: Dr. Katherine NöllingDesign: Roland Berger Media DesignRoland Berger Strategy Consultants GmbHAm Sandtorkai 4120457 Hamburg+49 40 37631-4421news@rolandberger.comwww.think-act.info