Members in pension funds are increasingly demanding that all parties in the investment chain also take the broader long-term interests of future generations into account, according to Gyongyi King, chief investment officer at Alexander Forbes Investments.
"Society is demanding that environmental, social and governance (ESG) factors, sustainability and climate change become key considerations in the investment process," she said following the recent release of the Alexander Forbes Manager Watch survey.
"As the asset management industry undergoes rapid change, investment firms are faced with the challenge of integrating technology into their existing business models and developing investment solutions that align with client values."
She said the number of listed companies on both the New York and Johannesburg Stock Exchange have reduced drastically over the last 10 years.
"This has been largely driven by increasing venture capital, technology advancements and diversification risk, among other things," explained King.
In her view, public markets are becoming less relevant as the private market is increasingly seen as the arena likely to offer good investment opportunities.
"The investment profession is facing challenges that require unconventional ways of thinking and where technology is the key catalysts to the change," said King.
She pointed out that, especially in the US, there has been an increase in passive investments (tracking a market index). This trend has not yet happened to the same extent in SA.
"High fees and sub-par investment returns from active funds (ongoing buying and selling by the investor) globally have led to a flood of assets moving from active to passive managers," said King.
"This trend is expected to continue into the future - highlighting the rise of passive."
In her view, the asset management industry is moving to a point where you must be "either broad or niche" to compete.
"The players in the middle are going to suffer in these challenging market conditions," she said.
For her the winning asset management business models of the future have to position themselves to grant access to assorted products, distribution channels and investors. They would have to have multi-asset and portfolio construction expertise to allow them to develop innovative solutions.
Furthermore, they would have to achieve high operational efficiency through robust product pipelines and operating at scale. Last but not least, they would need great expertise in either traditional or alternative asset classes.
"Asset managers that want to remain competitive should seek to build portfolios that integrate appropriate passive investment strategies," said King.