The brand of “Asset Management Inc.” is in decline. Whilst this fall is evident in the way in which the world’s largest institutional asset managers are perceived by the intermediaries and media that follow them, it is even more pronounced for UK wholesale managers.
The most obvious way to interpret these findings is that, as part of an industry facing considerable reputational threats, asset managers would be well advised to hone their defensive lines of communication and don their PR tin hats. Yes, to an extent. However, in a sector where active managers are remunerated to provide uncorrelated returns to falling markets - seeing downturns as opportunities to outperform and demonstrate their value - the same principle applies to brand and communications; during an industry-wide “brand downturn”, the ability to decorrelate from the sector’s negative trend will position companies strongly to reap the business benefits, ultimately helping to attract inflows, talent and client loyalty.
Two years of negative headlines, often focused on the asset management industry’s inability to justify its fees by an ability to deliver market-beating returns, has meant that the findings of our biennial Asset Management Brand Index make for sober reading. Brand scores – based on the views of intermediaries and the media – have fallen across institutional and wholesale managers since the last Index was published in 2017, dropping from 69.4% to 67% on average – with a more marked decline amongst wholesale managers. Of the 90 companies in the two ranking tables, 52 saw their overall brand score fall, with only 26 rising. In the wholesale list 28 of 40 firms’ scores dropped, with only 6 risers. The perceptions of investment advisers and journalists is reflected in broader consumer sentiment. According to the 2019 Edelman Trust Barometer, only 47% of UK respondents say they trust asset managers – lower than those who say they trust banks (55%) or insurers (51%).
A corollary of a generally hardening view of the sector from investments consultants, IFAs and investment media, is that differentiation has been tougher to achieve. There is an increasing sense from these communities of asset managers being a fairly homogenous group, with only a handful of firms standing out successfully. The average score for “uniqueness/distinctiveness” in our Index fell from 71% in 2017, which placed it within the “fairly strong” bracket, to 67.2% in 2019, firmly within the “average” bracket.
Taking a deeper look into the data – and those firms which emerged as winners - provides clues about how a differentiated, strong brand can be developed. There are three areas in particular which appear widely to be underleveraged by investment firms and which, if companies can communicate their position convincingly, have a significant impact on the way they are perceived by those that buy, or write about, their funds.
- Strike a balance between promoting the talent of individuals or teams and the rigour of the processes which underpin them. Scores for “investment process” - how asset managers and teams go about their decision-making, risk management, research and technology and tools they use to do so – were consistently lower than scores for “investment talent”. This indicates that firms are focused far more on marketing the skills of their fund managers than the approach and infrastructure in which they operate. If an investment team finds itself on the wrong side of a market move, having a well-understood process offers reassurance that their market view has a sound empirical basis and, over the long term, has a greater likelihood of being proven correct. A relatively small number of companies seem to be focusing on this area in their marketing and communications efforts – meaning a greater opportunity for differentiation for those that are able to do this effectively.
- Convey a clear sense of corporate culture – using the way employees are treated and empowered as means of doing so. There is a strong correlation between the companies which are seen to have a strong culture and those which have a strong brand overall. Of the top five companies for brand strength, four are also in the top five for corporate culture scores. A well-articulated corporate culture is beginning to shape and define the way asset managers’ brands are perceived. Several intermediaries, when responding to our research, told us that they see the way in which employees are treated and a low turnover in the workforce as the best yardsticks of corporate culture at an asset manager, as opposed to grand charitable gestures.
- Don’t underestimate the power of the management team. There is evidence in our study that management teams are extremely influential in shifting the way asset management companies are perceived, yet they often remain in the background. Scores for “management team quality” were amongst the lowest in any category and none of the 90 companies we analysed scored more than 80% in this area, which would have placed them in the “strong” bracket. To us, this suggests less that companies are viewed as having poor management teams but rather than – other than in a few isolated cases – little is known or appreciated about them. The impact of a well-regarded management team on an asset managers’ brand, however, is clear. Six of the top 10 rated wholesale managers for management team quality are also in the top 10 for overall brand strength on a size-weighted basis. In other words, the companies with the perceived best management teams tend to be those which punch above their weight in terms of their brand.
We are entering a period where volatility is expected to rise and generating positive returns, even for the best managers, will become more challenging. A strong brand should help companies weather storms - helping to attract assets in good times and build confidence and trust amongst investors which, in turn, helps mitigate outflows during tough periods. Performance is cyclical but brand should not be.