An asset management strategy is like maintaining a well-tuned car. 

 

Just as a car owner must plan for preventative maintenance costs to keep their vehicle running smoothly, investment officers must create a plan to keep their asset base performing well and delivering long-term returns. 

 

Yet the road to effective asset management is dotted with several potholes, including difficulty in:

  • Freeing up enough downtime in a busy schedule to read up on investment strategy planning
  • Keeping asset management strategies relevant in fast-moving financial markets
  • Building the possibility of unexpected events into an investment plan.

 

For example, in Europe alone, less than 8% of equity funds outperformed the S&P Europe 350 in 2023, making the need for a more dynamic asset management strategy clear. 

 

Failure to plan effectively risks diminished returns and missed opportunities.

 

This article examines the challenges investment officers must deal with as they seek to build an effective asset management plan. 

 

Only by knowing and understanding these can they hope to build a successful asset management portfolio that offers growth and value for money.

 

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What is an asset management strategy?

 

An asset management strategy is a plan for overseeing and optimising the assets of a business.

 

A robust asset management plan helps asset owners reach their long-term goals by either maximising returns for their preferred level of risk or minimising risk based on their expected returns.

 

Creating a strategy like this is a tall order but how investment officers create an investment strategy tends to come down to the steps they follow. 

 

Here’s an overview of the steps a successful asset management strategy example might take.

 

1. Get a clear picture of existing assets

 

Investment officers must clearly understand the assets they oversee, including how they're performing, and where they are within the investment lifecycle. This helps identify when to reallocate funds or make changes to improve the portfolio.

 

2. Define strategic objectives

 

The asset strategy must align with long-term goals. 

What does the asset owner want to achieve? Where would they like to be in five years’ time? Each asset must contribute to long-term value creation.

 

3. Develop an action plan

 

It is difficult to arrive at any destination without a roadmap. 

The best corporate plans for investment specify how asset allocation, investment plans, and performance metrics will all play a key role in the journey to success.

 

4. Address key challenges

 

This is where many asset owners may fall short. They sometimes fail to build flexibility into their strategy which helps to adapt to challenges one may not see coming. 

 

Regulatory, financial, or operational risks all come into play here. Savvy asset owners prioritise risk management and develop strategies to mitigate them. They also build them into their asset management strategy.

 

What do these challenges look like in more detail? 

 

The next section will explore the key challenges that every asset owner should be aware of when creating a strategy and choosing a manager to carry it out.

 

How do you develop an asset management strategy? The top 5 challenges

 

A winning asset management strategy must take stock of likely challenges that it will come against. 

 

Here’s a breakdown of the hurdles every asset manager or owner is likely to face at some point in their career.

 

1. Adapting to rapidly changing market conditions

 

Like a skilled boxer, an excellent asset management strategy must have a robust mindset yet be agile enough to change stance when faced with an unexpected blow.

 

This blow typically comes from unexpected economic shocks that take asset owners by surprise: think of geopolitical events like the US-China trade war or the Russia-Ukraine war as prime examples. 

 

A recent survey by software provider Autorek suggests that this challenge resonates deeply with UK asset managers: 38% of respondents listed economic uncertainty as a top challenge.

 

Such volatility creates pressure to respond quickly, but there is a danger of asset owners reacting too drastically to immediate events so that they lose focus on long-term business objectives. 

 

Strategic asset management plans (SAMPs) with long-term aims but flexible enough to adapt to the market’s twists and turns are the key tools here. 

 

These business plans should incorporate key statistics, such as the fact that the most significant short-term impact from a major global event on equity markets occurred during the Lehman Brothers collapse in 2008, which led to a 27.3% drop over one month.


 

Building this knowledge into an asset management strategy is important if we want it to weather economic jolts and perform well in the long term.

 

2. Finding the time and resources to create effective systems

 

Time is the most precious commodity, especially for asset owners operating in a fast-moving and demanding environment. Unfortunately, a busy schedule means it often comes in short supply. 

 

This can impact how well investment officers do the investment research and data analysis needed to develop high-performing methods. 

 

Tight budgets, too, hold back spending on resources needed to carry out this work.

 

Either or both of these constraints mean that promising investment opportunities may pass by or vulnerability to risk increases. 

 

Any asset management strategy, then, must be clinical and efficient. It should use technology to streamline decision-making and avoid using more resources than necessary. 

 

This may mean breaking down an asset portfolio into its individual components and assessing the efficiency of each one. Rooting out underperforming assets with key performance indicators (KPIs) is a great way to make a portfolio more efficient whilst also helping to maximise return within an acceptable level of risk. 

 

Asset management software or seeking the help of fellow investment officers online can help free up valuable resources in this area.

 

3. Pressure to keep up to date with changing regulations

 

Staying on the right side of regulations is a constant concern for asset owners who must operate within a complex framework designed to protect investors and uphold market integrity. 

 

Like most regulations, these frequently change so keeping up-to-speed is a costly and time-consuming process.

 

However, a failure to follow the regulation during audits risks falling foul of compliance and incurring long-term reputational damage, not to mention heavy financial penalties and even prosecution. 

 

No wonder new and changing regulation is listed as one of the top three priorities of UK asset managers, as per the above graphic.

 

4. Staying informed about important ESG standards

 

Climate change and rising emissions have pushed sustainable investments to the forefront of investors’ minds, a shift that is underlined by increasing pressure to comply with Environmental, Social and Governance (ESG) standards.

 

These standards drive investments towards initiatives like energy efficiency and sustainability, shaping portfolios to meet ESG compliance.

 

A steady increase in global ESG-compliant investment over the past decade reflects this mindset, rising from less than $15 trillion in 2014 to a projected $40 trillion in 2030, according to Bloomberg Intelligence.           

                                     

Like most regulations, ESG standards change quickly, so staying compliant and up-to-date is difficult. A lack of reliable and consistent ESG data further muddies the waters, as not all sources provide the same level of detail or accuracy.

 

Even if investment officers do get hold of the correct data, integrating it into asset management investment strategies means adjusting systems and processes, something that is complex and resource-intensive,

 

An asset management strategy that stays on the right side of ESG while meeting long-term financial goals should be a top priority. 

 

5. Getting stakeholders on board with the strategy

 

Coming up with an asset management strategy is one challenge, but convincing stakeholders, like board members, that it’s the right course of action is another.

 

This is particularly true in areas like private equity or innovative sectors. Managing expectations on returns and risk is a constant challenge, as stakeholders often have varying risk appetites and time horizons. 

 

They also, of course, want to know how the strategy works for them personally. 

 

“Investors demand more personalised solutions now,” says Harry Bruintjes, founder of Crossings, a business growth consultancy. “This increases the complexity and cost of asset managers’ offerings.”

 

Successful investment officers know how to communicate the reasoning behind allocations so that they resound with their firm's expectations. They know how to make a compelling case for them that is built around knowledge of the benefits and risks involved. 

 

A quick checklist for an officer tasked with getting stakeholders on board may look like this:

  • Provide clear and concise information on the expected asset performance, including expected returns.
  • Explain the diversification benefits of the assets involved 
  • Specify the risk mitigation strategies in place
  • Be transparent about the fees associated with various allocations

 

Investment officers who don’t get stakeholders on board will find that they have to go back to the drawing board and spend valuable time and money creating a new strategy from scratch. 

 

Struggling to come up with a strategic approach to asset management? Join the cio investment club

 

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