Most financial services firms are like “water companies”: IBM report
Apr 29th, 2009 | Filed under: Institutional Investing, Today's Post
IBM’s internal think tank, the “Institute for Business Value” just released a report with the rather heady title “Toward Transparency and Sustainability: Building a new financial order.“ While it sounds like this paper is about corporate social responsibility or Nicolas Sarzoky’s “New World Order”, it’s actually about fundamental trends that affect the asset management industry. The report is based on a survey of over 2500 individual investors, financial services executives and government officials over the past 6 months.
The report highlights a common theme here at AllAboutAlpha.com: the bifurcation of the asset management industry into beta providers and alpha providers. Says the report:
“…tomorrow’s winners are most likely to be those firms that specialize, not those that try to do everything, and three specific areas of specialization are likely to emerge. The majority of financial markets firms will concentrate on becoming “beta transactors” – i.e., utilities that provide the infrastructure required to facilitate capital allocation in the same way that water companies provide the reservoirs, purification processes and pipes required to deliver clean water. A smaller number of firms will concentrate on providing advice – e.g., wealth management or mergers and acquisitions advice. And a handful of “alpha seekers” – typically private equity firms, hedge funds and boutique investment houses – will focus on generating high returns from high-risk investments.”
Or, for the more graphically-inclined… More…
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[...] all about alpha IBM’s internal think tank, the “Institute for Business Value” just released a report with the rather heady title “Toward Transparency and Sustainability: Building a new financial order.“ While it sounds like this paper is about corporate social responsibility or Nicolas Sarzoky’s “New World Order”, it’s actually about fundamental trends that affect the asset management industry. The report is based on a survey of over 2500 individual investors, financial services executives and government officials over the past 6 months. [...]