There was a time in this industry that you didn't brag loudly about passing the $1 trillion AUM mark, but that's changed now, according to Jes Staley
, managing director of BlueMountain Capital Management
Staley, who had been previously chief executive of both the asset management and investment management arms of JP Morgan
, made these comments during the keynote presentation of the Money Management Institute's Spring Conference hosted at the Hilton New York in Midtown.
During a presentation titled The Future of Asset Management:A Five Year Outlook
, Staley said that four themes would be critical to the industry in the coming years.
The themes are:
THEME 1: Size and Scale
Size and scale are becoming ever more important in the industry. Staley noted that about five years ago, when JP Morgan's asset management had crossed $1 trillion AUM, management consensus was to not brag to loudly about the milestone.
"The reaction of people in investment management arm was 'Keep it Quiet.' If you passed it, you were too large, unable to sustain alpha," he said.
Staley then noted a number of firms that have passed the milestone, including BlackRock
among others, now use their scale as a competitive advantage, like in distribution. The milestone also does not hurt firms trying to attract investors.
Scale also has become an advantage in other spaces, such as private equity and hedge fund, which also had unspoken size limits — $10 billion and around $2 billion respectively.
THEME 2: Passive Versus Active
Staley said that both investment genres are alive and well.
Passive opportunities are out there, he said. The growth of ETFs is certainly another place where scale has a significant impact.
"Passive is here to stay. It is going to grow," he said. "Active is also here to stay as well."
Staley noted that most passive action is in equities, while most of the active players appear to be in the credit space.
"There may be a certain lesson there," he said.
THEME 3: The Role of the Capital Markets in Corporate Funding
The role of the capital markets has become increasingly important in funding corporate America and increasingly in the funding of the rest of the world's corporate sector as well, Staley said.
For example, he cited statistics stating that in 2008, the mutual fund industry accounted for 24 percent of corporate bonds, while in 2012, it accounted for 70 percent.
The mutual fund industry is becoming a direct primary source of capital for companies, taking the place traditionally held by banks.
The growth of the capital markets is becoming a necessary requirement for the growth of the U.S. economy, he said, citing a rule of thumb ratio of financial assets to GDP dollars of four-to-one.
THEME 4: Private versus Public Ownership
Staley said that there is a "fascinating discussion" going on in terms of whether the investment management industry should be publicly or privately held in terms of ownership.
There are significant players on both sides of the argument, which he says will continue to play out over the next few years.
Staley also brought up during the presentation the issue of diversification versus focus in the industry.
Should a firm focus on its core expertise or take on "adjacent capabilities."
For example, some firms are focusing on alpha generation, while others turning more to the edge of the spectrum devoted to providing distribution with scale.
Some firms are taking the additional challenge of being alpha providers and broadly diversified or alpha managers and distributors.
Staley described this as "chewing and walking at the same time," but if you can make this strategy work, "the economics are in your favor."
"Do I focus on what I am good at or do I become a universal player," he said of the questions firms are facing now.
Technology, he said, would be the "biggest curveball" for making such strategies work.
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