The asset management industry has been anticipating that investors will move away from traditional fixed income portfolio and funds as interest rates start to rise. Turns out the shift is already well in action, according to a new whitepaper from management consulting firm Casey Quirk
, When the Tide Turns: Building Next Generation Fixed Income Managers
, a partner at Casey Quirk, says that investors are not waiting for rates to rise, and are already eyeing alternative investments such as global and emerging market bonds, high-yield and loan portfolios, alternative fixed income products, and private lending.
Itah calls these increasingly appealing investment strategies "next generation fixed income," and prognosticates that they will become crucial choices.
Problematically, investors—particularly older individuals—are not prepared to handle this transition and the rise of interest rates, Itah says.
"We calculated that if rates rise, 70 percent of losses will be felt by people on their 50s and 60s."
To help guide investors into wise decision making, asset managers need to do a complete reassessment for both themselves and their clients, Itah advises.
An asset manager need take a good look at its product, as well its philosophy, Itah says, and ask, "Is this still relevant? Must I make changes? What is right for investors? What can add value?"
Asset managers should focus on communicating with the client, Itah stresses. This is more than just explaining a product—it's about preparing individual clients for these next generation alternatives, as well as disclosing risks.
Most importantly, asset managers need to diversify their revenue banks, Itah says. Unfortunately for fixed income managers, that's going to require quite an effort, and will realistically probably only work for very large firms.
At the very least, be ready for the storm, because the impact, Casey Quirk's research suggests, is going to be a big one.
Here is the full report
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