Understanding the human factor in asset management M&As
With 2022 already off to a fast start, the asset management industry is feeling pressure in several key areas. The issue of fees is one of the biggest challenges, as increasing cost awareness from customers and a desire for greater price transparency puts pressure on firms to justify their prices and offer greater value.
With more automation in the mix along with more passive investment models, customers similarly expect lower fees as a result. Still, with the demand for high yield remaining, this has led to a growth in the popularity of alternative investment products in areas like private equity, real estate, infrastructure and even blockchain and cryptocurrency.
As these innovative investment products become even more popular, many firms are looking to integrate them into their offerings — but there can be a risk of culture clash between this new disruptive approach and the more traditional approach of established asset management firms.
Navigating this dichotomy can be challenging, but firms that can successfully integrate people and products will be better positioned to help their customers achieve their financial goals moving forward.
Today's asset managers need to be focused not just on their clients' portfolios, but investing in what's good for society and the environment at large. Investors are keenly aware of the need for greater sustainability and more ethical business practices, which affects a wide range of any firm's operations — including internal governance, social and environmental impact, and even investment products themselves.
These areas of focus provide opportunities for more established asset managers to improve their own brand while gaining new talent and capabilities in the process.
Until recently, institutional investors have been the main source of capital for asset managers, but that’s changing. Smaller investors offer an untapped resource, given consumers’ increasing appetite for long-term personal savings and the growing mainstream demand for more alternative and less liquid strategies.
Today, digital and data are the big disruptions in the asset management industry. Technology offers a route to greater operational efficiencies, smarter investments, and new insights into clients and behaviors. But on the flip side, tech-savvy clients are demanding innovative reporting, a better customer experience and lower fees.
With the biggest firms taking the majority of asset management business today, the competition to join those firms in this $1 trillion industry is fierce — and it's not enough to simply scale up. The answer? Consolidation, whether through mega-deals, smaller acquisitions or both.
But any M&A activity must create long-term value for investors as well as firms. If it's just about cutting costs, investors will see right through it. That's why intangibles are such an important part of any deal — and it all starts with people. Areas like company culture, organizational structure and job architecture are key to putting the best team together and getting the right fit. Undertaking a talent analysis of key leadership early in the deal process can be a strong starting point.
According to a recent FT Future of Asset Management conference, culture integration is the most efficient enabler of improving ROI when merging. Successfully integrated firms have a much higher increase of net inflows, with a cost structure which is 8.5% lower than non-integrated firms, and profitability levels that are 20% higher. Companies that approached integration through thoughtfully implemented strategic organizational design made faster decisions.
With these trends in mind, we've identified nine essential factors that can make or break a merger:
Finding the right leaders and closing skill gaps is critical when two organizations come together. In these challenging times, the need for seasoned professionals with strategic management skills is greater than ever. These leaders must be able to drive change and digital transformation — and they must be mature, agile and able to weather uncertainty with confidence.
But it's not just the C-suite that requires these leadership skills. It's also essential to identify the most talented and capable employees throughout the entire organization — with a particular focus on talent retention at every level.
Today’s most in-demand candidates will be sizing up the type of investment firm, the ownership structure, the commitment to growth and the commitment to impact and sustainability. That's why intangibles — the human factor — are such an important part of any M&A process.
To learn more about how Korn Ferry works closely with our asset management clients during the M&A process, contact us here.