What's a fund manager to do? The new Asset Management Focus
study by Freeman & Co.
finds that household penetration of mutual funds has remained at about 50 percent since 2000.
In addition net inflows since 2002 have been marginal at best, with AUMs rising mainly because of market returns.
The Freeman study explores four areas that they think are the keys to the kingdom as far as asset growth is concerned: saving/spending rates, longevity risk, product innovation and market returns.
First discussed is the saving-spending balance, one of the big issues facing fund complexes, especially in the 401(k) area. As more Baby Boomers retire, they will be rolling over their 401(k)s, spelling trouble for fund firms without a plan of action to recapture those assets. As a response to the looming crisis, the study's authors suggest that fund companies take a good hard look at their sales and marketing techniques and gear them to the anticipated shift in the market.
The authors of the study think that if enough assets flow out of a fund, a takeover or expensive acquisition may be necessary to correct the problem.
Longevity risk is traditionally the providence of insurance companies, but the study's authors believe that mutual fund companies can target this area as well with hybrid income products.
"The challenge is if investors have concerns about longevity risk, who can come up with lifecycle package that addresses those needs," Eric Weber, managing director and COO at Freeman, told the MFWire
A good product is always paramount to have as bait when going fishing for new investors and the study's authors don't disagree. They just feel that fund companies should explore some of the newer products out there such as ETFs, lifecycle funds, and turnkey asset manager programs.
Now, ETFs for everyone may not be logical considering 80 percent of the market share sits with two companies. Lifecycle funds, however, may be more plausible as a new product, and they also let firms use old products, too. Many firms are currently introducing them as a way to get assets into their proprietary funds.
The fourth and final caveat of the study, market returns, is somewhat out of a fund complex's control. The authors think that with the right actions on the other three issues, this will be a non-issue, barring a significant drop in long-term average growth rates.
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