Looking Back at the Past 25 Years and Forward to the Next 25

Abstract

Earlier in the second half of the 20th century, asset management evolved dramatically as it became common practice to revisit certain principles which had underpinned the institutional world: the introduction of quantitative practices in general and the “discovery” of the efficient frontier in particular forced a rethink of risk-taking and thus portfolio construction. Index investing probably is the single most visible development still visible today. The private wealth world waited longer to embark on the same path of reformation, but made up for its initial lateness by innovating at a fast pace since the early 1990s. Three crucial changes accompanied a gradual shift from the inherited wealth, as the main client, to the advent of new wealth, which was arguably more prepared to ask for new approaches. The recognition that taxes matter and that tax day is everyday was, chronologically, the first, though it capitalized in part on work that had been carried out in the institutional world with certain insurance companies. The advent of open architecture simply reflected a reality which already existed in the institutional world, but was not necessarily appreciated by managers who were “product-driven.” This allowed a broadening of the strategies offered to individuals, including the use of alternative and illiquid strategies. Finally, the recognition of the fact that individuals have multiple goals, multiple time horizons and different risk tolerances for different goals brought Goals-Based Wealth Management, with a key catalyst being the work of Das, Markowitz, Scheid and Statman in 2010. Looking ahead, one can see that a lot still has to be done, with an important element probably involving the integration of insurance into the wealth management mix.