A low yield environment and a more sophisticated global investor will force asset managers to work harder and change their strategy, as investors, particularly in Asia, favour active management over passive, according to a new white paper from Swiss bank UBS.

Evolution of an Asset Manager, authored by Curt Custard, head of global investment solutions, and Matthew Richards, strategist, global investment solutions, outlines the changing face of asset management and offers tips for all model of asset manager.

Passive exposure to global bonds and equities is no longer giving investors the outcomes they desire, said the white paper. Investors are seeking to improve their investment outcomes through active asset allocation and broadening their portfolios with alternative asset classes like real estate, currencies and commodities. In other words, firms must offer clients comprehensive solutions to  their investment needs, which, in a new regulatory and investment environment, are changing with increasing frequency.

"While a role remains for specialists in subsectors of asset classes, these can be thought of as components," said the analysts. "Large asset management firms not only need to provide the components, they also need to combine the components into a complete investment portfolio." 

"That requires capabilities in areas including asset allocation, risk management and derivative techniques, as well as investment teams specializing in narrow areas such as US equities or emerging market debt – and/or a manager selection team that can choose suitable third-party specialists in these areas," said UBS. 

Market changes will require sales and client relationship managers to increase their level of investment knowledge and to develop deeper, longer-term relationships, said the bank. "Especially for institutional or quasi- institutional sales, the role of the salesperson must transition from providing a standardized product to a role with more in-depth technical knowledge. This may mean splitting the sales roles between a ‘door-opener’ and a technical sales function," UBS advised. 

Even boutique investment teams that focus on specific asset classes or regions need to change their modus operandi, said the bank. Specialists can become better investors by talking to specialists in other areas. Having an understanding of the broader investment environment can help investors know when companies’ fundamentals will begin to reassert themselves.

Distribution teams also need to adapt, said UBS. The emphasis is shifting from selling single products to developing a deeper understanding of clients’ needs, and helping them develop and maintain the right investment strategies to meet those needs.

"On the wholesale side, a similar change needs to take place. Instead of clients buying products based on asset classes, the market will likely shift to one where the client outcome is paramount," the white paper said.

The bank concluded that the investment environment has undoubtedly become harsher since the "balmy days of the late 1990s". Asset managers need to help their clients set realistic goals and work harder and be more innovative to meet them.