[Edaily Marketin KIM SUNG-SOO Reporter] The nature of competition in the asset management industry is changing. In the past, it was common to select asset managers based on specific asset classes—such as “Which firm performs best with overseas stocks?” or “Which firm excels in real estate?” In contrast, a so-called “solution business”—which involves examining an institutional investor’s entire portfolio to identify gaps and fill them—is emerging as a new competitive advantage.

This approach goes beyond simply creating and selling products; it involves “diagnosing” an institution’s portfolio and prescribing the necessary strategies. From the asset manager’s perspective, the ability to identify gaps in an institution’s portfolio—rather than just how well they manage specific assets—has become increasingly important.

“We’re good at overseas stocks” vs. “There’s a gap here”

According to the financial investment industry on the 9th, the asset management industry’s business model is evolving from the simple sale of products in the past to a “solution business” that addresses the specific needs of institutional investors.

This shift is particularly pronounced in the overseas investment market. When selecting an asset manager, institutional investors are no longer looking solely at an individual firm’s track record or competitiveness in a specific asset class; they are now also considering the risks and gaps within their overall portfolio.

For example, let’s assume an institution manages the majority of its overseas equity portfolio with a focus on growth stocks. While this poses no problem when growth stocks are leading the market, the likelihood of missing out on returns increases significantly if the market’s focus shifts toward value stocks.

In this case, rather than replacing their existing growth-stock manager, the institution might adopt a strategy of addressing the lacking “value” factor through a separate portfolio. This involves identifying the weak links in the overall portfolio and compensating for them with a distinct investment strategy.

A prime example is the National Pension Service’s “Completion Portfolio.”

A “Completion Portfolio” (complementary strategy) refers to a portfolio designed to offset and adjust for unintended risks or style concentration that arise when a large pension fund, such as the National Pension Service, entrusts assets to multiple external asset managers (active managers) as part of its asset allocation strategy.

The “Completion Portfolio” Introduced by the National Pension Service

Without a “Completion Portfolio,

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when an institutional investor outsources management to multiple managers, the individual managers do not share their holdings with one another and instead focus on achieving excess returns through their specialized strategies.

As the exposures of these individual managers combine, a bias toward specific risks related to sectors, regions, or factors may arise. In such cases, this could deviate from the institutional investor’s portfolio positioning, which is designed to balance short- and long-term investment opportunities and risk allocation.

The role of a complementation portfolio is to analyze the institution’s entire portfolio, identify missing assets, factors, or investment strategies, and fill those gaps. The goal is not simply to add new assets, but to identify structural gaps in the existing portfolio, respond to changes in the market environment, and increase risk-adjusted returns.

For example, in an overseas stock portfolio with a high weighting of growth stocks, value stocks or specific factors might be added. The National Pension Service analyzes its own portfolio to identify areas of deficiency, and asset managers utilize a structure in which they propose and implement strategies to fill those gaps.

These changes are also affecting the competitive landscape of the overseas investment market.

From an institutional investor’s perspective, there is less reason to entrust funds to a firm simply because it is a major global asset manager. Instead, asset managers that analyze an investor’s existing assets and strategies and then propose the optimal mix for their portfolio may prove to be a more attractive option.

“Who fills my gaps?” rather than “Who is famous?”

In response, asset managers are strengthening not only the competitiveness of their products but also their ability to provide customized solutions tailored to individual institutions. As investor demands become increasingly segmented, the role of asset managers is expanding from that of a “product supplier” to that of a “portfolio designer.”

In particular, the need for such solutions grows as market volatility increases. This is because when there is a strong concentration on a specific style or asset, the entire portfolio can be affected if the dominant market theme shifts.

The “complementary portfolio” approach, which originated with the National Pension Service, appears to be spreading to other institutions. It has been reported that the Korea Post has also begun implementing a similar complementary portfolio strategy. Institutional investors are increasingly moving toward directly assessing their own portfolios and, based on the results, assigning specific roles to external asset managers.

In other words, institutional investors are shifting away from evaluating asset managers solely based on the returns of a specific asset class and are instead focusing on the role that a given strategy can play within the overall portfolio.

Industry observers view this as a significant evolution in the investment management approach of institutional investors. The perspective on asset management is shifting from the traditional practice of assigning separate managers to different asset classes to viewing the entire asset base as a single portfolio and identifying gaps within it.

An official in the financial investment industry stated, “From an institutional investor’s perspective, simply managing a specific asset well is no longer sufficient,” adding, “The ability to diagnose which areas of the overall portfolio need to be supplemented and to propose appropriate solutions is becoming a key competitive advantage for asset management firms.”