The future of profitability in investment management: Strategies and insights

In an era marked by shrinking operating margins, investment firms worldwide are intensifying their focus on financial discipline and the strategic forecasting of business growth.

A new whitepaper from Aiviq delves into the reasons behind this shift and outlines how the industry is constructing the foundation for comprehensive firm-wide profitability modelling. It also highlights the integration of scenario planning within essential business processes, underscoring the critical importance of financial precision in today’s challenging market conditions.

Over the past two decades, the complexity of client and fund profitability was often overlooked by CEOs of investment firms. Favourable market conditions and strong performances led to significant net flows and returns, with high client fee rates ensuring that net revenues stayed ahead of operating costs. However, the financial landscape has evolved. Active fund managers now face declining operating margins amidst a backdrop of high inflation and interest rates, regulatory pressures, and increased competition. This has necessitated a more meticulous examination of cost bases and revenue allocation.

The Investment Association’s most recent survey revealed a noticeable decline in the industry’s headline profitability in 2022, falling to 22% from 29% in the previous year. This downturn is attributed to a decrease in revenue coupled with a slight increase in operational costs, bringing industry revenue to a mere 25 basis points of total AUM. These statistics paint a clear picture of the challenges facing investment managers today.

The whitepaper provides a thorough examination of the factors affecting cost allocation models and the major data challenges that complicate profitability forecasting. It offers a detailed case study on how Aiviq’s global AUM platform has significantly reduced setup costs for an FP&A team, showcasing the tangible benefits of innovative financial tools in addressing modern challenges.

With an emphasis on the importance of fund and client profitability, this whitepaper presents a compelling narrative on the necessity for investment managers to adapt to the changing financial landscape.

Download the whitepaper here.