Asset managers are dialing back on new product development this year and instead focusing on products launched in the last couple years. Forty-six percent of managers plan to roll out one to three new products in the next year, compared to 13 percent who plan to launch more than six new products over that period, according to a recent report by Cerulli Associates.
“In the last couple years, managers introduced so many products that they feel it’s time to take those products that they launched in the last few years and really focus on selling them,” said Cindy Erickson Zarker, director at Cerulli. “Their sales forces and customers can only absorb so many messages about products at once.”
After the markets started to recover from the financial crisis of 2008, many asset managers got their budgets and confidence back to launch new products, Zarker said. Investors were also looking for different strategies post-crisis that would mitigate volatility and were less correlated to traditional asset classes. That spurred a lot of product development during that time, she added.
But this year, asset managers are raising product development budgets only moderately, the Cerulli report said.
That said, forty-two percent of firms said innovating their product line was a top focus for 2014, according to Cerulli. About a third (36 percent) of firms said either expanding distribution or building brand awareness was their top focus.
Of those firms that do plan to make changes to their product line, they’re focusing development around asset allocation strategies (74 percent), alternatives (62 percent), and domestic equity (46 percent). Alternative, multi-strategy and non-U.S. funds tend to command a higher management fee, Zarker said.
Twenty-six percent of asset managers said downward pressure on management fees (the top answer) had the greatest impact on their profit margins in 2013. This fee compression is being driven by the competition from passive investing and the commoditization of many strategies, Zarker said.
“Managers have to be just really savvy in how they spend money and the types of products they bring out.”