BBH: ETFs remain a ‘core component’ of an asset manager’s product suite
11 December 2020 US
Image: christianchan/Adobe Stock
Brown Brothers Harriman (BBH) has launched its inaugural C-Suite Asset Manager Survey, which found that 63 percent of respondents either have exchange traded funds (ETFs) or are looking to enter the market.
For the survey, BBH held senior-level discussions over the past few months with CEOs, chief financial officers, chief operating officers, and senior executives.
The respondents represent a wide spectrum of global asset managers including large, multinational asset allocators and smaller, boutique firms, BBH explained.
BBH noted that many large asset manager respondents already have a strong representation in the ETF market – 89 percent currently have ETFs or are looking to enter the market.
“One of the lessons of the recent wild ride in equity and bond markets over the course of this year is that both retail and institutional investors have increasingly relied on ETFs to implement their investment responses to the crisis,” said BBH.
The survey found that during the most volatile stretch in March, ETFs accounted for 40-45 percent of total market trading in the US and 30-35 percent of activity in Europe.
BBH said this highlights the fact that during bouts of market volatility, we should expect that investors of all stripes will turn to ETFs to adjust their portfolio exposure, particularly fixed-income ETFs.
In the US, ETFs added a record $300 billion worth of assets this year, now totaling $4.7 trillion, while globally, the ETF market eclipsed $7 trillion in assets by the end of September, according to the survey.
It was also identified that for asset managers, particularly active managers, this presents an opportunity to diversify their product offerings to meet clear investor demand.
Recent SEC approvals mean that US managers now have options to limit their portfolio holdings disclosure, while taking advantage of the lower cost and tax efficiency of ETFs.
“We expect these so-called semi-transparent ETFs to usher in a whole new crop of asset managers to the ETF market,” said BBH.
Among other topics, the survey also looked into the growing trend of environmental, social and governance (ESG).
As many asset managers are pivoting to new strategies and reducing expense, the survey found that many expressed the notion that ESG has always been embedded in their philosophy and investments, but they haven’t necessarily received credit for it.
Expense reduction is also top of mind for asset managers as 49 percent of asset managers said that real estate was the top area they would look to reduce expenses this year.
Additionally, the survey discovered that asset managers with a larger real estate footprint – particularly those with thousands of employees – expressed a greater desire to cut real estate expenses.
Meanwhile, 75 percent of asset managers with $500 billion assets under management or more said they are looking to reduce real estate expenses, compared to 40 percent of small firms and 43 percent of mid-sized firms.
Elsewhere in the report, further key takeaways suggested that the economy is weighing heavily on global asset managers with 61 percent of respondents saying the economy is their top concern, followed by sales efforts/revenue retention (45 percent), and staff productivity (29 percent).
To combat fee compression, economic pressure, and to boost performance, asset managers are pivoting to new strategies.
Some asset managers said they will boost performance by optimising securities lending, foreign exchange, and operational improvements, BBH’s survey found.
It was also highlighted that COVID-19 has influenced how asset managers are allocating capital and their working style with 77 percent of global asset managers changing the way they allocate capital as a result of the pandemic.
While most believe that 50 percent of their employees will be able to return to the office in Q2 2021, flexible work arrangements are here to stay, according to the survey.
Commenting on the results, Chris Remondi, partner at BBH, said: “The results of our conversations validate an opinion we have held since the beginning of the crisis: we are amidst a transformative time in our industry.”
“For years, global asset managers have felt the pressure from a myriad of challenges. Fee compression, compliance and regulatory changes, low organic asset growth, and rising technology costs fueled by rapid innovation have all weighed on asset managers,” he said.
Remondi added: “Enter the COVID-19 crisis, which accelerated the pace of many of these challenges. More than 50 percent of respondents plan to reduce expense ratios on their products. And most cite the economy as their greatest concern in the current environment. Many managers, understandably, are looking even harder at cost, operational resiliency and efficiencies, and new product opportunities to respond to changing market dynamics.”
For the survey, BBH held senior-level discussions over the past few months with CEOs, chief financial officers, chief operating officers, and senior executives.
The respondents represent a wide spectrum of global asset managers including large, multinational asset allocators and smaller, boutique firms, BBH explained.
BBH noted that many large asset manager respondents already have a strong representation in the ETF market – 89 percent currently have ETFs or are looking to enter the market.
“One of the lessons of the recent wild ride in equity and bond markets over the course of this year is that both retail and institutional investors have increasingly relied on ETFs to implement their investment responses to the crisis,” said BBH.
The survey found that during the most volatile stretch in March, ETFs accounted for 40-45 percent of total market trading in the US and 30-35 percent of activity in Europe.
BBH said this highlights the fact that during bouts of market volatility, we should expect that investors of all stripes will turn to ETFs to adjust their portfolio exposure, particularly fixed-income ETFs.
In the US, ETFs added a record $300 billion worth of assets this year, now totaling $4.7 trillion, while globally, the ETF market eclipsed $7 trillion in assets by the end of September, according to the survey.
It was also identified that for asset managers, particularly active managers, this presents an opportunity to diversify their product offerings to meet clear investor demand.
Recent SEC approvals mean that US managers now have options to limit their portfolio holdings disclosure, while taking advantage of the lower cost and tax efficiency of ETFs.
“We expect these so-called semi-transparent ETFs to usher in a whole new crop of asset managers to the ETF market,” said BBH.
Among other topics, the survey also looked into the growing trend of environmental, social and governance (ESG).
As many asset managers are pivoting to new strategies and reducing expense, the survey found that many expressed the notion that ESG has always been embedded in their philosophy and investments, but they haven’t necessarily received credit for it.
Expense reduction is also top of mind for asset managers as 49 percent of asset managers said that real estate was the top area they would look to reduce expenses this year.
Additionally, the survey discovered that asset managers with a larger real estate footprint – particularly those with thousands of employees – expressed a greater desire to cut real estate expenses.
Meanwhile, 75 percent of asset managers with $500 billion assets under management or more said they are looking to reduce real estate expenses, compared to 40 percent of small firms and 43 percent of mid-sized firms.
Elsewhere in the report, further key takeaways suggested that the economy is weighing heavily on global asset managers with 61 percent of respondents saying the economy is their top concern, followed by sales efforts/revenue retention (45 percent), and staff productivity (29 percent).
To combat fee compression, economic pressure, and to boost performance, asset managers are pivoting to new strategies.
Some asset managers said they will boost performance by optimising securities lending, foreign exchange, and operational improvements, BBH’s survey found.
It was also highlighted that COVID-19 has influenced how asset managers are allocating capital and their working style with 77 percent of global asset managers changing the way they allocate capital as a result of the pandemic.
While most believe that 50 percent of their employees will be able to return to the office in Q2 2021, flexible work arrangements are here to stay, according to the survey.
Commenting on the results, Chris Remondi, partner at BBH, said: “The results of our conversations validate an opinion we have held since the beginning of the crisis: we are amidst a transformative time in our industry.”
“For years, global asset managers have felt the pressure from a myriad of challenges. Fee compression, compliance and regulatory changes, low organic asset growth, and rising technology costs fueled by rapid innovation have all weighed on asset managers,” he said.
Remondi added: “Enter the COVID-19 crisis, which accelerated the pace of many of these challenges. More than 50 percent of respondents plan to reduce expense ratios on their products. And most cite the economy as their greatest concern in the current environment. Many managers, understandably, are looking even harder at cost, operational resiliency and efficiencies, and new product opportunities to respond to changing market dynamics.”
NO FEE, NO RISK
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
100% ON RETURNS If you invest in only one asset servicing news source this year, make sure it is your free subscription to Asset Servicing Times
