"You don’t have to be big to be successful in asset management"

Pascal Nägeli: Alistair, asset managers have been increasing their technology spending, yet many haven’t seen meaningful reductions in costs or boosts in margins. Does your in-depth analysis of asset managers support my observations

Alistair Lamb: Yes, our data confirms this. Despite higher technology spending, there's no clear link to improved profitability or investment performance. Much of the spending is directed at maintaining legacy systems instead of driving strategic change.

Pascal Nägeli: From my perspective, there’s too much focus on automation and small improvements, and not enough on fundamental innovation in products and infrastructure. The ecosystem remains largely unchanged. What do you think?

Alistair Lamb: That’s what I conclude from the fact that aggregate industry profits have been flat for more than a decade. Innovation in the industry seems superficial. And while technology costs need to be allocated wisely, you don’t have to be big to be successful!

Pascal Nägeli: I see it the same: There is a myth – not only in asset management of course - that bigger is always better; that scale automatically leads to success.

Alistair Lamb: Yes, the data forces us to reject that myth. Many firms pursue growth through M&A, only to see limited or even value destructive outcomes. Our analysis shows that most M&A deals result in significant underperformance of the buyer. In asset management, scale certainly doesn’t predict higher margins or better client outcomes for multiple structural reasons. Strategy developed using insights from data will deliver better long-term results, and far better than overpaying for AuM. Our results also point to operating efficiency predicting higher capital returns, and that asset managers are underspending on marketing.

Pascal Nägeli: That’s why efficiency isn’t just about cost-cutting, it’s about rethinking structure. Technologies like digital ledgers can help by enabling transparent, fractional ownership and direct asset control. In Alternatives, smart architecture can be a game-changer. But is the industry willing to change? I sometimes doubt it.

Alistair Lamb: Ok. It’s worth looking at the alternative asset classes. They represent a growing share of the industry, but despite their apparent low return volatility, they introduce more risks for the clients but also to the balance sheets of the asset managers. These managers have higher levels of co-investment via balance sheet leverage, thereby multiplying their exposure to their client’s asset class specific risks on top of their own operating and financial risks. As the price of liquidity has jumped since 2022, clients and managers need to be looking for solutions to these risks before they materialize.

Pascal Nägeli: This is interesting. We can see clearly that there is something like an innovation gap: asset managers polish the edges; some integrate automation, a few push innovative products, but rarely question the end-to-end value chain. There's a lack of bold innovation in how products are built, distributed, and experienced by clients. That’s where true efficiency and differentiation lie. And of course, this is where we come in. But what does your data show?

Alistair Lamb: I see the same. It really shows when you look at more than one thousand asset managers globally every year! Very few deviate from traditional models. This means that the firms, their products, their distribution, and how the client experiences them have become ubiquitous commodities. Furthermore, our research reveals that success isn’t a function of size. This opens up the discussion on optimal strategy. Our analysis shows that asset managers are frequently misallocating capital. The real basis is understanding which cost centers influence which KPIs such as inflows and profit margins. And we’ve done that work. Some of the relationships are surprising.

Pascal Nägeli: So let’s talk about how we can collaborate. i.AM Lab focuses on helping managers identify strategic sweet spots, where innovation can be both efficient and differentiated. To do that, we need solid, actionable data. That’s where LQR comes in.

Alistair Lamb: True. Our data, analysis, and insights contribute a quantitative basis to your strategic advisory and solution innovation. This makes for a unique and value-creative offering of innovation and strategy.

Pascal Nägeli: For me, it’s about taking asset management a step further by fundamentally rethinking how it operates. I'm especially excited about the potential of digital ledger technology to decentralize and modernize the value chain, eliminating the need for traditional funds and creating wallet-based mandates. It’s not just innovation for the sake of it; it's solving structural inefficiencies that have persisted for too long. The opportunity to build something truly new is what energizes me.

Alistair Lamb: What drives me is seeing preventable mistakes repeated across the asset management industry due to a lack of data-driven decision-making. When boards ignore evidence, they destroy shareholder value. Setting scale as a goal, or overpaying in M&A, are just two recurring errors. Our mission at LQR is to provide decision makers with the quantitative insights to improve strategy setting. It’s incredibly motivating to bring clarity where there’s often just noise.

This conversation kicks off our new series, where we at i.AM Lab, in collaboration with Lamb Quantitative Research, debunk the myths of asset management. Sign up for our newsletter to stay updated and don't miss our insights.