Active management can thrive but there are going to be winners and losers. The winners will be those who embrace innovation and execute transformational change.
Product innovation will remain critical and the key in moving your offering to areas of growing client interest, such as alternative and real assets, and something unique that delivers a certain level of pricing power. For example, our new product launches since our merger in 2017 have carried an average revenue yield of above 50bps, compared to our corporate average of just below 30bps. Product innovation can protect margin whilst also delivering volume – those same post-merger products have delivered around £14bn of AUM to us.
Managers should also look carefully at the vehicle they choose to deliver their solutions. Historically, vehicle type has often been an afterthought for many managers. However, between ETFs, separately-managed accounts, and specialist fund structures like the European Long-Term Investment Fund, clients have more choices than ever before. As a result, the wrapper that managers use to deliver their solutions to clients will become a bigger part of the selection process. This means we need to make sure they have the expertise to support these options.
Technology is another important area of innovation. While it is typically viewed as a way to help to drive down the cost of alpha, active managers are actually utilizing data science techniques to deliver more alpha. We are looking at how we use these techniques to drive better idea generation, portfolio construction, and ongoing evaluation of our investment processes to understand where we are adding value.