Here’s How Asset Management Adds Value to Your Business in the Current Scenario

The COVID-19 outbreak caused widespread economic disruptions across the globe in 2020. Although most firms had contingency plans in place for business perpetuity, the COVID-19 pandemic led to severe operational and financial consequences. No firm would have envisioned that their business sustenance plans would need to factor in global lockdowns, quarantines, 100% remote working, and conveyance restrictions.

However, the impacts of the global pandemic differed from industry to industry. While the revenues of the investment management industry didn’t take a massive hit, many individual asset management firms did face a setback. High market volatility and large-scale capital erosion witnessed a large number of high-profile investors exiting the financial markets.

Some of the prime challenges that the asset management firms had to face following the coronavirus outbreak are listed below.

Challenges in Asset Management

• Conventional asset management profiles usually comprise equities and fixed income instruments. With lowered investor confidence, reduced consumer spending, and stressed corporate credits, institutional and HNI (High Net-Worth Individuals) investments have taken a hit. Passive portfolios are still largely unpopular among high-profile investors.
• Large-scale portfolio redemption by HNIs or institutional investors will have adverse tax implications for asset management companies. Low portfolio valuations may lead to tax harvesting by investors to reduce their taxable incomes, especially their taxable short-term gains. Direct consequences of such investor actions are illiquid markets and distressed funds.
• Human capital is the backbone of an Asset Management Company (AMC). Managing investor portfolios, handling client queries, and running day-to-day operations, etc., all require human resources. Following the global pandemic, employees were forced to work remotely. With economies gradually recovering, the remote work model is likely to continue for a few more months. Thus, the risk of cyber threats and technology breakdowns remains high.

Moreover, stress due to high client demands, potential exposure to coronavirus, and market fluctuations might lead to increased human errors and absenteeism. Subsequently, AMCs may face increased operational issues and service delivery bottlenecks.

• Usually, AMCs have a robust supplier network comprising fund accountants, payroll processors, tech vendors, custodians, third-party distributors, etc. Many of them are key process drivers. If their operations are located in geographies with heavy COVID-19 caseload, then supply chain disruptions are inevitable.
• As per regulatory norms, AMCs are expected to disclose the economic disruptions caused by the global pandemic in their financial statements. This requires detailed impairment, debt, and liquidity assessments, which might impact the timely filing of financial statements.

Possible Solutions

• Asset Management Companies must maintain clear communication with their clients. This might be a good time for asset managers to explore contra investing styles provided the clients are aware of the potential risks involved. The AMCs may also try convincing clients to go for passive funds. As the markets are on the recovery path, passive investments are likely to yield decent returns.
• AMCs may handle redemption requests in a phased-out manner or freeze redemptions for a while to avoid bulk portfolio sales. Such moves should be clearly explained to both internal and external stakeholders. If employees’ primary tax locations have announced special tax stimulus packages, then AMCs can benefit from such tax reforms.
• AMCs must ensure that all key personnel working remotely have all the requisite software and high bandwidth internet connection. Special training must be provided to team managers to handle remote staff efficiently.

Flexible working hours, health risk mitigation programs for on-site staff, revision in KPIs (Key Performance Indicators), lower annual salary increments instead of zero increments, etc., are some measures to keep employees motivated during such testing times. Firms may also provide value-added benefits like increased medical insurance coverage, covering child-care expenses, etc.

A 24×7 back-end support team can help in solving system or software issues encountered by remote staff.

• Revision of SLAs, strategic sourcing, reviewing lead-time impacts, etc., are some ways by which AMCs can minimize logistics and supply-chain bottlenecks.
• During times of low liquidity, greater NAV(Net-Asset Value) divergence, and decreased price discovery, AMCs may revise their valuation techniques, processes, and policies to prevent regulatory compliance lapses.

Asset Management and its Value Addition to Business

Investor risk-return profiles have undergone significant changes due to COVID-19. The shifts in preferences are more visible among the HNI and institutional investor categories. Asset management involves value creation as per changing preferences.

Companies or businesses need effective asset allocation strategies for survival. A suitable asset allocation strategy for a business depends on its goals, expected returns, risk tolerance, regulatory environment, macroeconomic conditions, etc. Asset management involves selecting the appropriate asset allocation strategy based on these parameters. However, it is a time-consuming and cumbersome process requiring in-depth research. The complexity has been magnified in the post-COVID world due to widespread production and economic disruptions.

Moreover, periodic review and rebalancing of the investment portfolio are required. Dynamic business environments and ever-changing technologies demand active portfolio management to keep pace with the changes. Non-performing investments or investments with sub-optimal returns must be replaced with more profitable investments. This ensures that businesses do not become cash-strapped and function smoothly.

Asset managers help businesses to identify a suitable asset allocation strategy after a detailed review of the risk-return appetite of a firm and other factors affecting a business. Besides, they help businesses to diversify and rebalance their portfolios from time-to-time after assessing the market movement of every asset in their portfolio and other conditions. They also help in determining the optimal asset mix for a firm. The asset mix is modified as per changing scenarios.

Notably, asset management adds value to businesses or firms through effective asset allocation, risk optimization through portfolio diversification, and agility through periodic portfolio rebalancing.

These apart, asset managers use a mix of different investing styles and portfolio management strategies to ensure maximum gains for a business. Also, they make use of innovative technologies to maximize client satisfaction. All the benefits that firms can reap from asset management can be extended to HNI and retail investors too.

Final Word

In the post-COVID world, asset management is likely to move center stage with the rising demand for retirement funds and healthcare plans. Government-backed wealth funds are also gaining prominence. Assets managers will be entrusted with the responsibility of pooling investors for healthcare, retirement, and wealth funds. Furthermore, their services will be required in capital-raising activities due to growing urbanization and international trade.

For AMCs, flexibility, adaptability, quick turnaround times, and robust digital transformation are the keys to survival in the post-COVID era.

Decision Time

Following the above-mentioned discussion, you might have gained clarity on the role of asset management services in the success of your business or wealth generation.

At Xanara, we are involved in active wealth structuring and portfolio management. We thoroughly understand our clients’ risk-return preferences and do a complete assessment of the clients’ portfolios. Accordingly, we model personalized solutions for effective portfolio returns. Our solutions are agile and designed in collaboration with the client as per their comfort and convenience.

Our team of competent asset managers ensures that intergenerational wealth transfers are secure and seamless. We are well-versed with global as well as domestic regulatory frameworks. At Xanara, asset management strategies are carefully designed in tandem with market movements and economic conditions. We also have expertise in asset valuation backtesting, and yield enhancement. Our solutions are driven by robust innovative technologies.

We provide custodial and advisory services to a broad clientele that includes HNI, family businesses, and institutional investors. Our reliable and customer-focused approach helps us build long-lasting relationships with our clients.

So, let us connect right away! Browse through our website for more information or contact us here.

About Xanara

Xanara is a private banking and wealth advisory focused on developing and implementing transparent and client-centric, financial solutions that are backed by expertise. We understand the weight of our solutions and act with the utmost care, resilience, and most importantly, integrity.