Firms lean on third parties to build scale while the digital shift drags past five years
Asset managers are betting on better plumbing, not flashier products, to stay relevant as fees shrink and costs climb.
A new report from Citi Investor Services and CREATE-Research, "Upping the Innovation Game in the Asset Management Industry," finds firms shifting innovation from new products to process and organizational change.
The study calls the aim operational alpha, or gains from efficiency rather than investment calls.
The survey put process innovation at the top of the priority list, cited by 62 percent of respondents, ahead of organizational innovation at 41 percent and product innovation at 28 percent.
Innovation overall remains a priority for 59 percent.
The report linked the pivot to fee compression and rising complexity that built up after the 2008 global financial crisis, pushing firms towards operational excellence to improve costs, quality and credibility.
Respondents said innovation now chases several goals at once.
The most cited, at 83 percent, was being more responsive to client needs, which the report defined as meeting return expectations and risk appetites within cost-effective fee structures.
Improving productivity across the value chain followed at 74 percent, and enhancing operating leverage at 64 percent.
Partnerships are doing much of the heavy lifting.
Outsourcing is evolving into what the report termed partnership at scale, with 44 percent viewing collaboration with third parties as a way to build scale, enhance capabilities and share risk.
Firms increasingly treat these partnerships as a route to accelerate innovation and reach operational alpha rather than simply trim costs.
Technology will arrive slowly.
Despite advances in AI and automation, 57 percent expect the shift to a digital future to take more than five years, with data reliability and explainability the main constraints.
The report said managers are taking a measured, "learning by doing" approach.
On products, the conversion of mutual funds into ETFs drew the strongest support, with 57 percent calling it the most valuable innovation for clients.
Chris Cox, head of investor services at Citi, said the unit invests "over US$2 billion annually in platform modernization," delivering integrated securities and cash solutions in real time.
Digital assets will move onto the same infrastructure, he said.
Amin Rajan, CEO of CREATE-Research and the report's lead author, said asset managers of every size have relied on innovation to stay relevant as competition in the sector intensifies.
