WHITEPAPER

December 13, 2015

A paradigm shift in the asset management industry

Lars Dijkstra

Chief Investment Officer,
Kempen Capital Management, Netherlands lars.dijkstra@kempen.nl

‘We have changed from a profession with aspects of a business, to a business with aspects of a profession,’ according to John Bogle, founder and former partner of Vanguard. In the past thirty years, asset management has evolved from a profession to a distribution-driven industry, and shifted from a client-driven approach to a product-driven approach. In fact, a growing body of opinion suggests that asset management in its current form does not add value. By far the lion’s share of global savings is controlled by financial conglomerates. These are respectable institutions, of course, but many of them have a short-term focus within an activity they do not even consider their core business. Of the investment funds that are actively managed by the conglomerates, the long-term performance of the majority1 lags behind the index. Apparently, they fail to convert our savings into profitable production capacity.

This paper will first analyse the main developments on the demand side, with a specific focus on the challenges perceived by (Dutch) institutional clients2. Subsequently, we will look at the supply side. What is the position of the asset management industry in 2012? In order to bridge the gap between what clients want and what asset managers offer, asset management will have to reinvent itself. The tools and options to do so are readily available, but it will require a paradigm shift in the industry. We need to transition from short-term salesmanship to long-term stewardship.

  1. Developments on the client side

The current crisis hit pension funds hard. Stakeholders such as participants, regulators, supervisory authorities, politicians and the media keep a watchful eye over everything they do. The financial position of many pension funds is under pressure, and the public is keenly aware of the cause: in the outside world it is all too eagerly pointed out that it is the ‘incompetence’ of pension boards who fail to implement proper risk management that is at the basis of this position. Many pension funds have performed poorly during the crisis. They may, perhaps, have anticipated the direction of financial markets, but the magnitude of the downturn took them by surprise. Furthermore, diversification offered very little solace in recent years: the majority of all investment categories were under pressure. Who ever said that investing is easy? The philosopher Kierkegaard once said: ‘Life can only be understood backwards, but it must be lived forwards.’

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