Product Rationalization for Asset Managers Happens Too Slowly

February 1, 2024 — Boston

Expanding vehicle offerings will require faster product rationalization to reallocate resources to new products

Despite the strategic priority that aligning product lineups through rationalization takes at many asset management firms, 71% of managers believe that it happens too slowly across the industry, while 43% believe it happens too slowly at their firm, according to Cerulli’s research, U.S. Product Development 2023: Resource Reallocation Through Product Rationalization.

As the investment product landscape rapidly expands its breadth into new strategies and vehicles, asset managers can easily become resource-constrained as they seek to deliver strategies with more choice for intermediaries and investors. In turn, they must make quicker decisions on which strategies and vehicles to discontinue. “However difficult the decision may be, firms must understand that shutting down strategies frees up resources and allows for growth elsewhere,” says Matt Apkarian, associate director.

At the most basic level, the main criterion for rationalization is lack of profitability. While the range can be distinct for different asset classes and vehicles, a generalized minimum acceptable asset range exists around $150 million to $200 million, a range in which firms hope to reach within three to five years after launch. Failing to do so is the most significant factor leading to product rationalization, as selected among the top-three choices by 93% of firms.

Yet many asset managers face difficulties in their rationalization endeavors due to lack of structure and process for making decisions. “The process for rationalization can be handled improperly if there is not a structure in place, with clearly outlined decision makers and an understanding of the strategic direction of businesses that are being forced into rapid change by the evolving demands of capabilities and investor preferences,” adds Apkarian. According to the research, more than half of asset managers agree that executive teams and investment teams are among the most influential figures for product rationalization decisions.

Cerulli believes that continued industry fee pressure, rationalization on home-office platforms, increasing asset concentration among the largest asset managers, and overall broadening product breadth within the industry will all force a greater need for product rationalization. “It will become more important than ever for firms to keep pace with the industry,” says Apkarian. “With proper rationalization, firms will be able to run lean product lines and free up available resources needed to explore new vehicles, new strategies, and investor-focused businesses that will have a higher chance of success,” he concludes.

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