Asset Managers Go Bespoke in Fight for Active Mandates

Facing pressure on fees and competition for institutional clients, asset managers are using custom solutions to win over allocators.

Illustration by II

Illustration by II

Competition is heating up for asset management firms, which are building out their distribution teams in the hopes of winning mandates from allocators who increasingly demand customization.

A recent survey by research firm Cerulli Associates showed that 63 percent of asset managers expected an increase in requests for proposals from pension funds and endowments seeking custom solutions. As these managers vie for the attention of allocators, they are doubling down on strategies like liability-driven investing, which are specifically designed to meet client needs.

“My main takeaway from working on this report is that you’re seeing increasing competition in the institutional asset management industry and you’re seeing the residual effects of management fee pressure,” said Alexi Maravel, director of institutional research at Cerulli. “Those two factors are pushing asset managers to work with institutional clients in a more customized or bespoke way.”

[II Deep Dive: Asset Managers Working Harder to Woo Outsourced-CIOs]

Ninety-five percent of survey respondents said competition around management fees was the biggest challenge they faced – beating out passive investments, which 89 percent cited as a top concern.

“A year ago if we did this same survey, competition from passive would be the top challenge,” Maravel said.

According to Maravel, distribution teams are adding staff to stave off the competition. Of the asset managers surveyed, 83 percent said increasing their headcount was the most important thing they were doing to win institutional mandates.

The survey respondents planning to add to their distribution teams said they had, on average, 2.5 marketing professionals three years ago. As of 2018, those teams have swelled to an average of six members, according to Maravel.

“What that tells me is that they need more hands on deck to meet these challenges of more complex client engagements,” Maravel said.

Many of these new engagements are likely to come from insurance general accounts and health and hospital systems, according to the surveyed distribution professionals.

“Those two client types are highly customized, highly bespoke arrangements,” Maravel said.