An analysis of factors impacting on the profitability of asset managers in Zimbabwe and strategies that can be adopted to improve profitability

Abstract

The asset management industry is experiencing viability challenges as evidenced by failure to post profit by most players amidst weakening macroeconomic environment. The aim of the research was to thus analyze the challenges facing the asset management industry and attendant impact on profitability and propose strategies that can be implemented to ensure enhancement of or return to profitability by the companies. The research reviewed existing literature on the viability of asset management companies and survival strategies was reviewed. The research philosophy adopted in the study was positivism alongside adopted descriptive research design and survey strategy. Sampling technique was purposive and included a managerial representative of all registered asset managers, registered stockbroking firms, regulators (ZSE, IPEC and SECZIM), and wholesale investors as represented by pension funds with ZAPF councilors used as the representative population for both institutional and retail investors as well. Data analysis was conducted in Microsoft Excel and to a large extent in SPSS software. The study revealed that asset managers face viability challenges arising from management and research competences, operating cost structures, customer service level and FUM growth. The study revealed that cost containment was viewed as the most effective strategy for enhancing profitability. Distribution capacity enhancement and leveraging on ICT, followed by differentiation and specialization were also viewed as strategies effective to enhance profitability of the sector. The study recommended that regulators relax asset allocation guidelines and allow asset managers and investors to pursue investment opportunities that are commensurate with their risk appetite and investment objectives. It was also recommended that regulators focus on developing secondary markets for more financial assets such as bonds, Treasury Bills and exchange traded funds. The study further recommended management to implement leaner and efficient cost structures leveraging on ICT and remodeled distribution capabilities over and above adopting differentiation and specialization strategies. The areas of further research recommended in the study included impact of corporate actions, role and or importance of risk management in asset management and impact of regulatory changes on asset management sector profitability.