Product Strategy – New Ways of Thinking For Now & The Future

Over the last 18 months, we have noticed a significant uptick in clients seeking to discuss with us their existing Product Strategy and Development functions. In part, these conversations have been about benchmarking their functions against their peers in terms of structure and output. Equally, we have engaged in thoughtful and constructive debates around the role of Product Development in driving investment strategy enhancement and client acquisition in changing market paradigms.

These discussions have led to AMC making a number of hires for our clients into Product Development and Strategy leadership roles as they seek to enhance their effectiveness in this space.

But what have been some of the key factors for this interest in Product Development?

  1. Pre-Crisis Assumptions Disproven

Issue - The previously held assumption that stable correlations exist that allow investors to diversify their holdings and manage risk across different market scenarios was clearly disproven as all asset classes traded down together. 

Also, despite many investment managers claiming a proprietary process, managers nonetheless exhibited enough commonality such that they wound up holding many of the same security names (and often for the same underlying investment reasons).

Response - Many investment managers have had to adopt more innovative and proprietary investment processes than was previously the case. This has meant a rise in the use of absolute return type products and innovative fund structures. The articulation of this process has also become far more important.

  1. The Search for Alpha

Issue - Despite the impact of QE and artificially low interest rates, continued low yield environments pose ongoing global challenges for growth.

Alternative investment strategies are now being applied in far greater numbers to bridge the performance gap. The requirement of good manager selection to provide returns has never been more important.

Response - Firms have been forced to further consider more concentrated and higher risk strategies in an attempt to bridge the performance gap in a low interest rate, low growth environment.

  1. Continued Fee Pressure

Issue - Legislation (RDR, Mifid, Solvency II), the rise and increased complexity of passive strategies, and a rethink of the charging structure for Alternative managers have all contributed.

Response - A number of companies have sought to mitigate this by continuing a process of fund rationalisation/mergers and a comprehensive rethink of their charging structures.

  1. Demographics and The Need for Retirement Solutions

Issue - This has driven an increased need for products offering guaranteed income and dynamic asset allocation components. Equally a retail funding gap and concerns over fee charges (see above) is fuelling a large amount of demand for both lower fee and enhanced alpha products.

Response - Outcome orientated strategies and an increasing use of target date type vehicles can be observed. Equally, the need for risk rating when marketing to retail clients is another key development.

In seeking to respond to these challenges, the nature of a best in class product development function comes to the fore. What attributes lead to success?

  1. A Clear Product Development Strategy

Understanding where the market is moving, over what time frame and how this compares with current products, client segments served and firm capabilities and differentiators is key. This includes the need to rationalise existing funds before competitors force the issue. Team members must possess in-depth knowledge of the competitive environment, have an informed view of industry trends and be capable of originating and analysing new product ideas to provide supported opinions regarding the market opportunity for each. In developing analyses, the team must leverage the collective knowledge of the organisation through its interactions with other functional groups.

  1. Internal Stakeholder Engagement

The Product Strategy & Development function must have a clearly articulated relationship with Sales and Investment functions. A leader of such a group must have the technical competence to work closely with senior Investors to help build on the thoughts and discussions related to new product development. Equally, they must have the ability to articulate such strategies to the sales teams. They must be able to take the analysis around competitor products and funds to the investment teams and support their thinking around how to respond. This blend of technical investment competence coupled with strong commercial and relationship management skills are imperative for the success of the function.

  1. Getting Product Management Right
  • ØHaving a robust new product approval process is critical. This anticipates the people, process and technology requirements for the investment strategy at hand. It also allows for the assessment of gaps versus current capabilities and guides remediation of these gaps, all in a timeframe that does not negatively impact the planned timing of the product launch.
  • ØA persistent governance and feedback process. This typically includes external (investor) and internal assessments of success areas and areas for improvement.  Key questions typically addressed by the governance process may include distribution effectiveness, investor education requirements and internal product controls effectiveness.
  • ØA flexible systems infrastructure. Infrastructure may need to be built or modified to handle new aspects of the investment process and/or middle and back-office processing and accounting. 

We hope you enjoyed this piece. To discuss our findings in greater depth, please contact Navin Raina or Kim Watson at AMC Executive Search on +44 (207) 397 3777.