For most asset managers, developing new products can take up to a year. But according to new data from Coalition Greenwich, the types of products allocators are looking for change rapidly during that same time period.
The same goes for the amount of capital they’re able to expend on new products, forcing asset managers to plan ahead before they choose what strategies to develop.
“The constant fluctuations in demand demonstrate the risk of trying to chase trends,” said John Franscioni, head of investment management research for Coalition Greenwich in a statement.
Hunting for flavor-of-the-month type products can leave asset managers with “bloated product lineups filled with subscale, non-strategic products that have limited future upside,” he added.
Greenwich surveyed over 300 asset owners annually in 2019, 2020, and 2021 about the products they plan to allocate capital to.
In 2019, U.S. long-duration products received the largest expected allocation dollar-wise, raking in $21.8 billion. The following year? Just $13.8 billion was expected to come their way. The strategy has since seen an increase again ($23.9 billion expected in 2021).
What’s interesting, though, is that the number of mandates targeting long-duration strategies was low compared to other products. It shows that while institutions are allocating large sums of capital to these strategies, they’re not as popular as others.
Since 2019, products for emerging market equities have received the highest number of expected mandates: 90 in 2019, 129 in 2020, and 168 in 2021. The strategy also received the highest expected allocations in 2020 and 2021 — $28.3 billion and $26.5 billion respectively.
While these products reliably ended up in the top five expected mandate categories, the remainder were uncertain. For instance, in 2019, core plus bonds and core bonds ranked second and third among expected mandates, with a total of $38.7 billion expected to be allocated to the two product categories. In the following two years, neither cracked the top five rankings.
According to the report, asset managers tend to consider this data on institutional investor demands as the most important source for developing ideas.
“While this can be a good place to start, managers must be cautious of the changing nature of demand and focus less on the “hottest” products and more on the consistently demanded products they can execute well,” the report said.
This is especially true because of the time it takes to build products, which takes, on average, between three months and one year.
“This extensive commitment of time and resources attached to developing a product underscores the importance of getting the right ideas into the product development process,” according to the report.