Large Investment Managers Outperform Smaller Counterparts, Finds Survey
A global survey of investment managers released by SimCorp StrategyLab has revealed that financial markets have shown strong signs of recovery with the larger companies achieving the greatest growth: 52% of firms with more than 1,000 employees achieved at least a 6% increase in revenue compared to the previous reporting year. According to projected growth rates, the trend for larger firms to outperform their smaller counterparts looks set to continue with 68% of firms with annual revenue of over US$1bn expected to achieve a growth of 6% or more.
Key drivers in achieving growth are: having growth as a primary focus, a highly educated workforce and a more adaptable IT infrastructure.
Almost half of the surveyed investment businesses (47%) identify growth as their top priority going forward, relegating risk management and cost control to second and third place respectively. Of these, 34% expected to achieve a growth rate of 6% or more during the next reporting period. By comparison, just 9% of those having controlling costs as a priority are expected to achieve this level of growth and 27% with risk mitigation as a priority.
Key growth acceleration strategies are the introduction of new products (65%) and targeting new client segments (60%). Entering new geographic markets was the third most used growth accelerator (37%). However, while only one in three European companies (35%) intends to open a new location or locations by 2011, the desire to do so in other parts of the world is at least twice as strong – America (81%) and Asia-Pacific (54%).
There is an apparent correlation in the findings between a company’s past and future growth and how many MBAs/Masters of Finance it has on its staff: the more highly educated its staff, the more likely a company is to achieve high growth rates. One in five respondents projecting at least 6% revenue growth have two-thirds of their staff holding MBAs, while not a single respondent with low (less than 2%) revenue growth projection can claim to have this many staff with MBA degrees. The numbers are not radically different for those with master’s degrees in finance. Furthermore, one in three growth-driven companies (34%) have at least 30% of staff holding an MBA, versus one in four of risk-driven companies (23%) and only one in 12 of cost-driven companies (8%).
Having an IT infrastructure capable of supporting a company’s growth efforts is vital. Only one respondent out of 100 believed that IT infrastructure was not at all important in supporting growth; 87% had the opposite view. Risk-centric companies were more pessimistic about the capability of their IT infrastructure to support growth. Once again, size is a factor with smaller companies tending to have less confidence in their IT infrastructure, whereas larger companies are more likely to have the resources to invest in their IT infrastructure. Ostensibly this means that large companies can automate several processes that the smaller companies will have to do manually and therefore be in a better position to manage growth.
Professor Ingo Walter, director of SimCorp StrategyLab, said: “This survey brings out a number of interesting issues. There is a clear emphasis on new client acquisition, which implies client losses on the part of competitors resulting in an industry shakeout. Equally compelling is the perception that larger asset managers did better in the crisis and now have higher growth expectations than smaller ones. On the product side, there is importance attached to innovation which actually adds value as perceived by clients who are sensitive to the complexity, lack of transparency and illiquidity that characterised financial innovation leading up to the crisis. The need to manage assets professionally in the financial system is ubiquitous. Many of the larger firms, however, expect to be able to leverage their IT infrastructures as a durable source of competitive advantage and growth. But the structure, conduct and competitive performance of individual asset managers cannot be taken for granted, even in an optimistic growth scenario.”