BOSTON—An overly disillusioned Generation Y, the exploding middle class in emerging market nations and the bravery and the foresight to embrace new ways to reach investors will provide opportunities to the asset management industry in the years ahead, said Penny Alexander, senior vice president of Franklin Templeton Investments.
Alexander made her remarks in her keynote address at the NICSA General Membership Meeting here Thursday.
The long-term future aside, Alexander did not fail to underscore the immediate opportunities that Baby Boomers offer, given the fact that the average 401(k) balance is a paltry $70,000.
“How are they going to stretch those 70 G’s until they are 90 years old?” Alexander asked. “This is a tremendous opportunity for us to help people plan for retirement and their longevity.”
As for Generation Y, those people in their 20s and their 30s, they have become more risk averse than their grandparents did in the aftermath of the Great Depression, when the market fell 87%, Alexander said. Historically, it is important to remember that since 1926, the market has delivered an average return of 9% a year, she noted.
“All is not lost,” Alexander said. “Not all markets had a miserable decade in the 10 years ended 12/31/09. The Columbia stock market rose an average of 32.2% a year in the decade. Peru’s rose 26.5%, Czechoslovakia’s 25.9% and Brazil’s 19.9%. These are the kinds of stories that we need to remind Generation Y about. Get them to look all over the world.”
Perhaps more importantly, the asset management industry needs to adapt more readily to new technologies and ways to reach its customers—particularly this younger group.
Alexander, like many other speakers at the NICSA conference, paid homage to Steve Jobs, founder and former chairman of Apple, with the news of his untimely death at age 56 Thursday morning. Alexander, like many other speakers, noted how Jobs' vision transformed the personal computing industry.
Likewise, Alexander and other speakers said, the asset management industry must embrace new technologies and find ways to differentiate individual firm brands.
Alexander gave a succinct example of the music industry. “Think of all the ways you have been able to listen to and purchase music,” she suggested. “Vinyl records peaked in 1977 with 534 million units sold. Cassettes’ heyday came in 1990, with 530 million units sold. CDs peaked at 995 million units sold.”
And digitized music, which has yet to reach its reach its apogee, had 1.2 million downloads in 2009, she noted.
“Here’s another example--how many years it took mass communication to reach 50 million users,” Alexander said. “Radio took 38 years, television 13 years, the Internet four years, and the iPod three years. Facebook, which added 200 million users in one year, now has 750 million users.”
“The evolution of new technology continues to compress, and the adoption time continues to compress,” Alexander said. “We are going to have to continue to innovate. We have to step up our efforts as an industry to reach out to those gun-shy Gen Y’s.”
With regards to emerging markets, Alexander said the middle class in the these nations is projected to grow from 3.3 billion in 2006 to 5.1 billion by 2025.
True, Alexander admitted, these are households characterized as having earnings of a mere $6,000 annually. But put this opportunity in perspective, she suggested.
In terms of growth in assets under management, the forecasted growth for mutual fund assets under management over the next decade is projected to be twice the United Stated in Asia and three times in Latin America. Meanwhile, the U.S. and Japan may continue struggling with the aftermath of these recessions.
If the U.S. mutual fund industry were to able to convince the 5.1 billion people defined as middle class in the emerging markets to contribute just $100 a month to its products, this would result in nearly $4 trillion in annual gross sales.
“OK. Perhaps with $6,000 a year in annual income that is too optimistic,” Alexander said. “Let’s bring that down. If it was only $20 a month, that would equal $782 billion in annual gross sales. Even if that is too optimistic, $10 a month would equal $391 billion in annual gross sales.
“This illustrates the opportunities we have before us,” Alexander stressed. “As an industry, as a whole, if we are thoughtful and proactive—we can capture our share of the pie.”
-- This article first appeared on Money Management Executive.
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