By Marc Briol
When looking at the current environment of External Asset Managers (EAMs) and the complexities they’re faced with, it’s a fair question to ask, what lies ahead for them and their business model? How will this activity evolve ? Is the field of finance still attractive to young talents?
Despite the constant increase in regulations, rules and restrictions, as well as an ever increasing competition you can view the current environment the EAM evolve in as one full of opportunities if the right choices are made. Succeeding in this extremely competitive environment relies heavily on the right positioning, from a business model perspective as well as a geographic one.
Differentiation is key
EAMs need to position themselves on an offer which is differentiating. They must question what their core business is, ask themselves where they’ll outperform and stand out. There is not one defined way to achieve this: it could be through a direct management approach – being a producer - or through a modular one, by selecting managers based on external alpha generation – being an assembler - or even a combination of both.
Overall, the strength of an EAM is their position as a trusted advisor, they need to ask themselves if some activities that they’re carrying out, often for historical reasons, make their business stand out. Activities like reporting, analytics, or trades execution, that are not differentiating in terms of competitive edge could be outsourced or delegated to focus on the core business.
Geographic complexity with cross-border regulations can be viewed as an opportunity for EAMs to focus their activities on fewer markets with greater depth. Focusing on potentially a smaller scope with a higher level of knowledge can benefit EAMs as they reduce operational and regulatory risks.
What we observe at Pictet Asset Services with our longstanding collaboration with EAMs is that they have shown a tremendous level of flexibility and agility. They were definitely not favoured when the end of banking secrecy was announced, having to deal with cross border and fiscal constraints. The paradigm change is here to stay, it is powerful, but what we observe today is that EAMs are resilient, they’re growing and gaining market shares by making the right choices.
Although we see an increase in the number of players in the external asset management market, it’s vital to consider talent acquisition and development in these firms as a central concern. Indeed, having the right people with key skills will play a central role in differentiation.
What we observe at Pictet with the young talents we’re recruiting are that the activity must be stimulating, the professional environment must be interesting and finally feeling a sense of purpose is key.
Attracting the right talents
EAMs and financial services have a clear advantage when attracting young talents, as asset management becomes more complex. One example we see is the rise of more illiquid asset classes, like private equity. There is a real opportunity to attract people on these areas that are more venture capital oriented and require people to identify new and innovative business models. Another aspect which differs with previous “generations” of employees is the importance that flexibility and work/life balance play in choosing an employer, and this is something many well-established players may need to adapt to.
Finally, a key aspect that we see in employees but also clients is the sense of purpose. Young graduates we’re hiring at Pictet definitely ask a lot more questions about our purpose, they need to see the alignment between what we say and what we do in reality, how values are manifested in a very concrete way. This need for a sense of purpose reflects a larger societal shift as we see discussions around ESG, environmental and social impact becoming key issues for the next generation.
On top of acquiring the right talents, continuously training people is a necessity. We witness clients becoming increasingly informed about financial matters and sophisticated thus triggering the need to raise the providers average level of knowledge, which is a really positive thing. There are the unavoidable and mandatory trainings, for example those imposed by FINMA. However, there are additional opportunities to leverage by training people on their technical skills to remain excellent in their core competences, as well as complementing these with hard and soft skills.
On a final note, I’d also mention peer coaching is a way to increase collective intelligence. Indeed, I believe we need to look at competitors not exchanging as a scenario of the past. I think there’s real value and opportunities in exchanging with competitors and challenging each other makes us improve collectively.