Two Ads, Portfolio Construction, and a Strategic Dilemma for Asset Managers
A few years ago we worked with a large asset management firm to conduct a strategic review of the robo-advisor market. At the time our client simply wanted to learn more about the space and consider the implications, both good and bad, of these potentially-ascendant companies.
One topic we addressed during the work was portfolio construction. Specifically, the fact that for the most part asset managers held a mostly undefined role in it for advisors and investors.
While we’ve had this conversation many times since, it popped directly into my mind upon encountering two new “Uncommon Presentation” ads from Invesco. Each triggered very different reactions for me. First up, “It’s time to bench the benchmarks”:
This ad relays exactly the type of message I’d expect to see from Invesco or any firm with significant actively-managed offerings. It relays the need to build portfolios with more than just straightforward index (or low active share) strategies. The implication is for investors who buy into that concept to look at Invesco as someone who can offer solutions to plug into their portfolios. Makes perfect sense.
Next up, “Goodbye 60/40. Hello 50/30/20.”:
This ad leaves me less clear. The message is direct – investors need to shift from a traditional portfolio allocation to one that utilizes more alts – but the role Invesco can and will play is not. If the ad established Invesco as a leading alternatives provider, a firm that can help investors with the 20% allocation, that would fit. However, the ad is framed with and ultimately focused on overall portfolio construction (the 50/30/20).
This ties back to the issue we raised in the robo project: what role, exactly, does an intermediary-focused (i.e., non-direct) asset manager play in helping advisors and investors construct portfolios? At this moment, for the most part, I’d argue the answer is “not much”.
Of course maybe the ad is simply the jumping-off point for more discussion, which is fine. But I do think it illustrates two critical questions for most traditional, active, retail-centric asset managers to address:
- Is it feasible for us to be viewed as a key resource in portfolio construction or are we too far down the road of ceding that ground to our distributors, direct firms, and new entrants like robo-advisors?
- If it is feasible, what is our strategy?
The rash of robo-advisor acquisitions supports that idea that asset managers believe that becoming a more prominent resource for portfolio construction is feasible and necessary. But the messaging around these acquisitions has been carefully curated to be non-threatening to the status quo (i.e., “we’re doing this to help, not challenge, advisors”). And I don’t know that 20 different asset managers offering 20 nuanced robo platforms is an outcome, even in the short-term, that any single firm should view as favorable.
So when it comes to portfolio construction and the role asset managers wish to and can play in it, “what is our strategy?” is a more pressing question than ever.