An Industry in Flux

MIT Sloan Investment Management Conference explores asset management in times of turmoil

Pozen and EvansKeynote speakers: Robert Pozen, Chairman, MFS Investment Management and Michael Even President & CEO of Numeric Investors

On Saturday February 27, the Wong Auditorium was host to the 5th Annual MIT Sloan Investment Management Conference. Entitled “An Industry in flux: Shaping Asset Management’s Future,” the event was designed to explore the many ways the asset management industry is changing amidst the financial turmoil of the past two years. Focusing on the lessons to be learned during such a historically turbulent period, one of the goals of the conference was to examine the industry from multiple perspectives.

“The idea was to think about the lessons in two ways,” says Sam Cox, MBA, a member of the conference organizing team. “One was to look at what is going on in the actual capital markets themselves, and the second was to ask how asset managers are responding to that and how they are thinking about growing and structuring their businesses looking forward.”

To that end, through a pair of key note speeches and a series of four panel discussions, a wide range of voices were assembled to examine both where the industry is today, as well as where it might be heading in the future.

The role of regulation

Bob Pozen, Chairman of MFS and author of Too Big to Save? How to Fix the U.S. Financial System, was the first of the keynote speakers and provided an insightful look at the current economic crisis from the regulatory side. Beginning with the words of White House Chief of Staff, Rahm Emmanual (by way of Machiavelli): “Never let a crisis go to waste,” Pozen went on both to trace the many missteps the regulatory system made throughout the crisis, and also to voice his recommendations for what should change in the future.

At the top of his list was a need for government to set clear and strict guidelines as to which corporations can be bailed out in the future, as well as to redesign the board structure of larger corporations to hold managers responsible and get bond holders back in the game.

Also, describing the current size of the gross public debt as nearing a tipping point, Pozen stressed the need for America to begin saving again, and the importance of the Fed to take a stronger stance. He explained, “In my view the most important thing for the Fed is to get back to being a monetary authority, where it will have the political independence and courage to raise interest rates when we need to. We also need to clean out a lot of the low quality assets we currently have on our balance sheet. I think if we don’t have price inflation until 2011, we could get lucky and much of this stuff will roll off. That is what we should hope for.”

A practitioner’s experience

The second keynote speaker, Mike Even, CEO of Numeric Investors and the former CIO of Citigroup Asset Management, provided a view of the industry from the investor’s perspective. Joking that the last two years sometimes felt like “the longest decade of my life,” MIT Sloan alum Even used a fictitious firm, “Large Cap Growth Associates,” to illustrate how the asset management industry has grown from a small cottage industry in the 1970s to the ever changing and complex industry it is today. He then pointed out a number of trends, which have shaped that growth over the past decade, including an enormous increase in competitiveness, fueled by the unprecedented affordability and accessibility of both data and analytic tools.

Also important was the increasingly crucial role advice will play in the future, and Even noted that with complexity also comes opportunity. “When I was at MIT Sloan,” he said, “the only place you wanted to go was investments. That was the crux of the industry.” But, he noted, other functions, including operations, technology, and general management have become increasingly important.

The day-to-day impact

The centerpiece of the day was a series of four panel discussions meant to explore how various changes in the industry have impacted investors on a day-to-day level. Panels on asset allocation, emerging markets, post-crisis debt markets, and natural resources included a range of experts including MIT Sloan lecturers, financial analysts, portfolio managers, and a large number of other industry leaders. It was here that conference chair Mike Regan, hoped that MIT Sloan students and professional investors would gain useful insights that could impact them on a day-to-day level.

“A lot of times investment conferences are all about which stocks or sectors look attractive right now, and we wanted to step back and look at the whole industry of managing money itself,” says Regan. “It has been a unique couple of years and I think there are some pretty important questions to ask right now regarding the structure of the industry itself.”

Regan says he was happy with how the conference went and is encouraged by the increasing opportunity he sees opening in the investment management field. “Historically,” he says, “the industry was mostly portfolio managers who became CEOs, and as the industry itself has been maturing there are a lot more roles being created. It is not just the stock picker who hangs up a shingle and then becomes the CEO. You are having managers—people who study general management—coming in and managing these operations, along with operations people and technology people. In terms of MIT students, when they are thinking about their careers, many are considering the long term trends and opportunities over the next 20 or 30 years not just what’s happening next June. So a conference like this can really help from that perspective.”