Amazon primarily connects buyers and sellers of goods. But over time, it has evolved. Today, the company sells its own Amazon-branded products and has expanded into other types of businesses like cloud computing and entertainment. It’s an example of the platform-based business model common in the technology industry.
Now, asset managers are adopting the model and the firms embracing it are growing faster than those that aren’t, according to a recent McKinsey report on the industry.
Even though down markets in 2022 shrunk global assets under management by $13.5 trillion to $109 trillion, investors still gave the industry $1.3 trillion more than they withdrew and some firms got a significantly bigger share of that than others. From 2022 and through the first half of 2023, McKinsey analyzed 700 fund families and only 29 percent had net inflows, compared to 34 percent during the previous 18-month period. That short list of winners gobbled up $600 billion of the net flows.
Those firms also “tended on average to be larger, to have a full breadth of passive and active asset management capabilities, and to have some form of privileged access to distribution channels,” according to McKinsey. In other words, they have platform-based models.
In the late 1990s and early 2000s, asset managers usually played only one part of a big, vertically integrated platform. For example, managers co-existed alongside a retail bank, investment bank,and a wealth management business and the parent company would cross-sell products and services. The cross selling is what consultants call the exchanges between groups.
In the years that followed, independent asset managers rose in size and prominence and new models emerged in the form of turnkey asset management platforms, or TAMPs, which make investing in asset managers easier for financial advisors. Those two versions of platform businesses still exist. But a new one, in which the asset manager is at the center — the hub of a wheel adding spokes to itself — has “taken the industry by storm,” Ju-Hon Kwek, senior partner at McKinsey, told Institutional Investor.
Alternative investment firms in particular have embraced the platform approach, Kwek said. Even more than other managers, they have been working to create direct relationships with clients, favoring a few types of platforms to achieve that. Some are creating or investing more in service and distribution capabilities to engage clients directly. Historically, they relied on intermediaries such as banks, brokerages, or TAMPs to find and maintain relationships with investors but closer interaction with clients means they can sell them other products and services more easily.
Other firms are combining more traditional asset management with technology, operations support, and outsourced portfolio construction and manager selection capabilities. The best example of this is BlackRock’s Aladdin, which started as an in-house risk management platform and is now used by more than 1,000 organizations for some or all of their investment processes.
The platform-based approach isn’t just for the biggest asset managers that have the scale to invest in or acquire new types of businesses. Traditionally, a platform meant owning all of its parts. But the benefits of a platform can be achieved in other ways.
“What we’re actually observing, if you think even more creatively about these three models, is that in some cases one can create a platform-type effect also through partnerships or through strategic stakes in other businesses as opposed to necessarily needing to be fully integrated,” said Joseph Lai, a partner and the leader of the North America asset management practice at MicKinsey.