Product Shelf Syndrome: The Silent Crisis Facing Asset Management

This article is part of The Assetizer, GenTwo's thought leadership platform.

When we started The Assetizer six months ago the idea was to provide our insider's view on innovation in asset management and the investment world through short-form newsletter posts and in-depth interviews on our podcast.

We are delighted to announce that we are adding to our thought leadership portfolio with a new GenTwo Research series, where we will provide more data-driven, original and in-depth analyses and opinions. 

• You can download the white paper here: www.gentwo.com/shelf_syndrome_white_paper/ 

Getting Off “Off The Shelf”

We start with our first white paper: "Product Shelf Syndrome: The Silent Crisis Threatening Mid-Tier Asset Management Firms – And What They Can Do About It."

"Product Shelf Syndrome" is a coinage we came up with to describe what we see as a structural ailment plaguing mid-tier asset managers.  

The syndrome works like this: firms populate their client portfolios with third-party "shelf" products rather than developing their own. This seemed rational - why build from scratch when you can buy low-cost funds? Many shifted to open-architecture approaches, believing they were doing right by clients. But this well-intentioned shift had unintended consequences. While rising markets may make it seem like all is well, scratch the surface and you find a number of critical issues. In the report we list five:

• Fee compression and margin erosion - Operating margins have collapsed as average fees slide
• Alpha outsourcing - Performance depends on external fund managers, the majority of whom underperform over the mid- to long-term
• Indistinguishability - Portfolios filled with the same third-party products look identical to competitors, making price the only differentiator
• Brand dilution - Client statements show BlackRock and Vanguard names instead of your firm's, making you invisible
• Strategic irrelevance - When you can only offer what's on the shelf, you miss thematic trends and client-specific needs

We make the point that many managers are recognizing their traditional approach is untenable, an “awakening” driven by client demand. Much of this is for customization: we found that 30% of model portfolio assets are now in custom models, and 60% of asset managers cite custom delivery as a top priority. Investors also want new opportunities: there's rising demand for thematic investing, ESG overlays, private market access, and personalized approaches like direct indexing. This isn’t news. Surveys show that up to 80% of managers believe mass customization will be critical in the future.

Why Change is Hard

That problem is that recognizing the problem and fixing it are different things. Change can be hard. For this reason we discuss the blockers that abound when it comes to creating bespoke products: the high cost of launching traditional funds (tens of thousands to register, hundreds of thousands per year to operate), legal and regulatory complexity that can stretch product launches for months, platform friction where distributors control shelf space and prefer established brands, internal culture and structural inertia at firms built as allocators not manufacturers, and traditional structuring mechanisms that impose minimum ticket sizes and slow feedback loops.

We also think that the cost of inaction is higher. Firms face shrinking margins, client churn as younger investors become more fee-conscious, AUM stagnation as 70% of net flows go to passive products, and lower valuations as shelf-bound firms resemble commodity distributors rather than intellectual property creators.

Fighting back

The good news is that there are ways to fight this syndrome. We call that Assetization - the capability to turn investment ideas into bankable products quickly and cost-effectively.

In the paper we provide a broad survey of the tools of Assetization, much broader than we have done in the past.  

Among other things we dive into off-balance-sheet SPVs that can turn any strategy into investible notes without regulatory capital requirements, white-label platforms that let you launch branded funds in weeks not months through existing infrastructure, how to use strategic partnerships to leverage others' distribution and modular issuance capabilities, fast-cycle productization to test ideas quickly using agile methodologies, and hybrid approaches where you go proprietary where you have edge but use third-party for commoditized exposures.

The Playbook

One of my favorite parts of the new paper is the playbook. We’ve listed a number of concrete steps for firms to transition from, as we call it, "shelf-taker to product-maker". These include:

• Conduct a "Shelf vs. Self" audit - Break down your current offerings to see how much revenue you're passing through to third-party manufacturers
• Identify your "Assetization sweet spots" - Pick 1-3 areas where you have genuine expertise or keep hearing client requests
• Leverage partnerships for quick wins - Use SPV platforms or white-label providers to get your first proprietary product to market quickly
• Establish a product innovation framework - Create internal processes and committees that can fast-track promising ideas
• Rebalance portfolios gradually - Start with satellite allocations in proprietary products, increase their share as track records build
• Enhance transparency and communication - Be upfront about fees and show clients the value of bespoke solutions
• Foster internal culture - Treat investment strategies as franchise assets rather than just advisory ideas
• Reframe your firm's identity - Position as solution creators, not just advisors

Available today

There's plenty more. The paper runs to almost 15,000 words. There's plenty of research in it and also opinion and, we hope, good advice.

If this has piqued your interest, you can download the paper on our website. It's completely free. All we ask for is your professional contact details, so we know who you are.

If you like what you read – or if you don't – we're always happy to hear from you. You can reach me at assetizer@gentwo.com and our research team at research@gentwo.com. 

I’d love to hear from you. 

Tom Lyons, Head of Communications, GenTwo