The future of asset management will belong to those who have the scale to fend off growing challenges and invest in innovative technological tools, according to the co-chief of newly merged fund manager, Janus Henderson.
Speaking to the mounting pressures coming from regulators, Andrew Formica, co-chief executive officer (CEO) of the merged firm which relisted on Tuesday in both New York and Sydney with a combined market capitalization of more than $6 billion, claimed it is increasingly hard to compete without the resources to respond to the rule setters' demands.
"If you want to stay a diversified business the cost of doing so just continues to increase year-in and year-out. The reality is that for any business it needs also to invest and innovate and what you find is the cost of regulatory change is starting to crowd out your ability to make other investment," he asserted.
Another key pressure seen to be driving a wave of consolidation within the asset management space - which is expected to only intensify in coming years - concerns fees, with passive and low-cost fund options growing in scope, availability and popularity.
Yet Formica claims that fee pressure is just "the nature of our industry" and that the threat from passive management – which currently claims around 38 percent of assets under management according to Bernstein Research – is not necessarily driving the long-term trend towards fund manager consolidation.
Important clients of asset managers, such as banks and insurers who often act as intermediaries are also confronted by pressures which prompt consolidation and are increasingly keen to secure a more limited pool of global financial partners to work with, according to the co-CEO.
"The changes they face from regulation are changing the way they look to partner with firms such as ours," he noted, speaking to the rationale for the wave of consolidation sweeping through the broader global financial landscape.
Formica joins from Henderson, where he had been CEO since 2008. The U.K.-based fund management firm had not delved into machine learning techniques before but now has Janus's INTECH as part of its expanded combined product suite. The quantitative equities platform, which has been managing institutional money since 1987, will be part of a larger focus for Janus Henderson on opportunities in the machine learning, artificial intelligence and big data space going forward, says Formica.
"You will see us continue to invest in new areas and see if we can improve the way our fund managers deliver the returns they do for our clients," he declared, adding that it was "absolutely" a key area of focus for the firm.
"When I started in the industry 25 years ago you went out and sought ideas. Now there is so much information available the question is how to use it and become effective in that," he explained.
This summer will mark three years since PIMCO-founder and legendary bond investor Bill Gross departed his home of over forty years in Newport Beach to join Janus in Denver, Colorado. Formica says that Gross is a very talented manager but will not be expected to carry the performance of the asset manager alone.
"His numbers are very, very strong and very, very competitive. But he's only one of an array of talented managers that we have there. That's what I think all firms need to have which is a bench strength that covers a diverse range of products and a diverse range of talents."