Manager Selection

Solutions - marketing hype or the key to getting more from asset managers?

Over the last 5 years asset managers have expanded and strengthened their Solutions businesses to capitalize...

April 28, 2021

Over the last 5 years asset managers have expanded and strengthened their Solutions businesses to capitalise on strong demand from clients.


However, there is still no common understanding as to what a Solutions provider actually is. Questions also remain as to whether it is truly valuable or just marketing hype to avoid being seen as pushing products on clients.


This blog post attempts to clear up the confusion and provide an overview of the range of activities covered under “Solutions”.


Solutions is a process not a product

Solutions activities can broadly be defined as engaging with clients to understand their objectives, then designing and delivering customized portfolios. It is a process that takes a client’s needs as an input and delivers a client specific outcome. 


The range of solutions services provided by asset managers is shown in Figure 1.


The solutions process starts with the core client challenge. Asset managers gather information from the client to tailor their recommendations. Their advice is supported by a strong understanding of the client's needs, the regulatory environment that they operate in, ESG and other investment beliefs.


The next step is for the asset manager to design a solution. The solution may require a combination of standard products, customized versions of standard products or in some cases launching a new strategy.


Due to the custom nature, the process is usually iterative with the client. The asset manager will show a range of solutions before narrowing down to the final solution that exactly meets the client’s goals.


After implementing the solution, the asset manager will monitor and report on it. There will be agreed performance indicators that enable the asset owner to track how the solution is performing versus the longer term objective. 


Finally, the solution is periodically reviewed to ensure that it remains appropriate to the evolving needs and objectives of the client.


Figure 1: Solutions map of activities

Example investment need and solution

Due to the wide range of client needs, there are many different asset classes used in solution design. 


One example of the type of challenge that an asset owner might face, is a public pension plan seeking to replace their Treasury allocation with assets that have higher expected returns. Replacement assets must, however, play a similar role to Treasuries, which are held as a safe, liquid asset that can easily be sold when needed.


Each asset manager approached to design a solution will share their firm’s capital market research on potential replacement assets for Treasuries. They will also conduct custom analysis to show the impact on the total portfolio of replacing Treasuries with different assets. 


However, the solution designs from different asset managers could vary significantly.


An LDI specialist might design a custom cashflow matched portfolio of corporate bonds and other credit assets. 


Another firm might design a risk-managed equity strategy that allocates between equities and cash depending on equity volatility. 


A third firm might suggest a low volatility, diversified multi-asset portfolio that offers higher returns but is relatively low risk and highly liquid.


This is just one example, but demonstrates the wide variety of ideas that different asset managers may offer when faced with the same investment challenge. 


Demand for Solutions is likely to continue to grow


The range of solutions services offered by asset managers is a significant change from the historical focus of creating products that seek to outperform benchmarks. Investment performance will always be important, but it is not sufficient to meet the current needs of asset owners. 


Asset owners need closer and more collaborative relationships with asset managers. Asset managers need to provide insights as thought-partners and build custom solutions that focus on meeting the target outcomes of their clients.


The more asset owners that embrace the customized solutions approach, the more we can transform the industry for the better. The industry will be more client centric and focused on solving the most pressing client challenges and delivering improved outcomes.



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Zermelo

Zermelo is a platform for institutional investors to research, request and develop custom investment solutions. We make it quicker and easier to find the best solution that exactly meets your needs.

Ed Studd

CEO, Zermelo

Ed is passionate about helping institutional investors meet their goals through better custom solutions. Prior to Zermelo, he gained extensive experience across asset management, investment banking and investment consulting.

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