The asset management industry has enjoyed growth of 140 percent from 2002 to 2014, from $31 trillion to $74 trillion in assets under management, supported by the positive backdrop of falling interest rates and bull markets driven by the central banks. Passive approaches have garnered substantial investor flows due to their lower costs as well as skepticism about whether active managers can beat benchmark market indexes.

In this context, asset managers need to fundamentally rethink how they navigate this new market paradigm.

Investors are already changing their priorities, and, in particular, are developing a strong focus on limiting portfolio drawdown/losses. A recent survey of high net worth investors in Europe and Asia, found that downside protection was their highest priority, with 73 percent of investors citing it as a “very” or “extremely” relevant investment objective. This is a trend that we will see continue to accelerate in 2016, primarily as a result of high market volatility in the aftermath of the U.K. vote.

"In the new investment environment, with returns expected to remain very low across asset classes and risk on the rise, asset managers are reframing their relationships with investors,” says Marcus Queree, Investment partner at Alpinvesta Asset Management. “These market challenges are not temporary and require us to fundamentally reengineer how we build resilient portfolios to navigate this new phase,”.


In response, asset managers need to move away from traditional investment management and develop new ideas about active and passive asset management.

This mindset will steer asset managers to deliver investment solutions measurable against specific economic investor goals; for example, a minimum level of returns, or an excess return over inflation. The benchmark comparison will progressively lose relevance; in the goal-based approach, all investment decisions are seen as active choices, including whether — and to what extent — to add passive products to a portfolio in order to reach a specified goal.

These investment solutions are already gaining traction among investors and asset managers. In the asset management industry, more than €1 trillion of net flows came from solutions—multi-asset, fund of funds and liquid alternatives, including absolute return products—in the years 2011 to 2015. This trend is set to continue in the years to come.

 “We believe that the new environment for investors will entail a radical rethinking of the investment proposition to be a stark separation of active versus passive management,” says Queree.


The new solutions-based style of investing requires new approaches to product design, risk management, portfolio construction and distribution models. Asset managers are beginning to develop fresh approaches to managing risk, as well as focusing on “true” diversification, becoming more transparent around fees and seeking to deliver excess performance in order to compensate for lower expected returns.

More robust diversification can be achieved by using asset classes or investment strategies that exhibit low correlation.


During the 2008 crisis, the largest drawdown recorded by traditionally balanced portfolios (50 percent bonds and 50 percent equities) was in excess of 20 percent. The challenge for asset managers now is to find uncorrelated — but liquid — sources of return to enhance diversification.

More robust diversification can be achieved by using asset classes or investment strategies that exhibit low correlation.

In portfolios such as the above, if 20 percent of the assets had been moved from equities to liquid alternatives, performance would have been slightly impaired (5.2 percent annualized return from 2010—2016, compared to 6.4 percent without liquid alternatives), but the drawdown would have been cut by 36 percent.

We believe that liquid alternatives hold significant potential. There are a number of alternative strategies that asset managers can look to, which may provide flexibility and less-correlated returns, as well as daily liquidity,” says Queree.


In the move toward solutions, asset managers should evolve portfolio construction with a clearer aim to deliver “true value” to compensate for lower expected returns. In the survey, gaining excess returns emerged as investors’ second-highest priority.

Generating excess return is by no means an easy task: analysis conducted shows that, on average, active managers struggled to beat the benchmark in the 17 years from June 30, 1999 to April 30, 2016, contributing to an increase in complaints made by investors and regulators about the costs charged by active managers. By contrast, active managers that demonstrated higher conviction approaches, whose risk management limited downside in bear markets to 95 percent, achieved an annual average excess return of 1.4 percent. The other funds in the sample failed to generate excess returns against the benchmark.

It will be even more important for managers to strengthen their investment processes under a solutions-provider model. To Alpinvesta, this means enhancing high conviction idea generation through research,disciplined portfolio construction and risk management, and engaging in an ongoing dialogue with clients.

“When we look into the future, we see exciting opportunities for asset managers who adopt a solution-driven approach,” concludes Queree

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