Investing in the future

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Asset management may be one of the last industries to face technological disruption but that moment is fast approaching, according to a new report from global consultancy Willis Towers Watson.

It’s paper, by the consultancy’s internal thinktank Thinking Ahead and entitled ‘The asset manager of tomorrow’, sets out range of challenges facing asset managers and attempts to answer the question; How can asset managers meet the needs of asset owners in the Great Acceleration?

Fund managers who have spent the last few years talking about the impact of artificial intelligence (AI), big data, sustainability and more as part of their investment strategies may be about to become part of the story themselves.

For example, the report presents sustainability investing as a disruptive change and gives five reasons.

  1. The investment model is different.
  2. It involves firms making significant changes in process and reporting.
  3. Regulatory change is involved and growing significantly.
  4. Sustainability introduces challenger organisations into the industry mix.
  5. The technology component is large, particularly bringing significant amounts of new data and data issues into the investment model.

That data, says the report, is often seen as extra-financial but it could be a little more complicated than that.

“These measures are mostly soft, but they have future financial significance. The degree of significance varies substantially by the provenance and context.”

It is not all about ESG of course.

‘Uber moment’ is coming

The report considers why asset management has generally been able to resist an Uber moment so far and even suggests it is one of the ‘last industries to be disrupted’.

As the report says: “That is because it is an industry that depends so heavily on regulation, complexity and long-term experiences. It does not lend itself easily to the worldwide wish for simple and speedy solution that is leading most disruption.”

However, the clock may be ticking.

“Technology will surely over time be able to support greater transparency of value, better utilisation of assets, increased democratisation of savings and lower costs,” the report states

It notes that the technology is mostly software and includes big data and AI applied to predictive and prescriptive analytics and cloud computing i.e. many of the things fund managers have spent the last few years including in their own presentations.

That may also mean some radical changes in the internal structure of firms and that is a more significant change than, for example, building up an ESG team – important as that is.

 “The digital transformation of asset management is underway, but the industry still has far to travel. It is reasonable to project massive transformational change on the industry in the next five to 10 years at a scale much bigger than all that has gone before.”

T-shaped people for agile working

Thus the report also suggests that firms will have to employ more talented all-rounders – or in consultancy McKinsey’s phrase T-shaped people.

These people will fit into an agile working system – an approach that has moved from software to high tech firms such as Spotify and GE to at least some big financial players notably Barclays and ING.

It will also require reflexivity – effectively learning through feedbacks.

It is not clear to Global Investment Megatrends that many asset managers are applying agile working at least outside of their technology and software development teams.

Yet whatever the importance of the working practices, the most fundamental change may be in how managers manage money and how that changes the products offered to their investors.

The report adds: “We see the biggest differences that technology can make in the foreseeable future in two areas: in machine learning applied to portfolio construction with use of big data; and in improved segmentation of clients and client customisation with a theme in delivering better solutions.”

It looks as the technology megatrend will no longer just influence what fund managers invest in but how they invest too.

Richard Philbin, investment director at Wellian Investment Solutions

A fund manager’s view

“The section of the report which discusses “purposeful capital” is very interesting as it suggest that as capital is evolving, the needs of the consumers of this capital is evolving too.
“There is a difference between ethics and ethical investing, and the true definition of what sustainable actually means. Sustainable could well mean that for a business to survive it needs to offer three types of product – active, passive and outcome / solution driven.  Investors are either fully engaged or not engaged at all and therefore hands on or robo could well be obvious choices.
“Clients could well want to shift between the two. The shift of “value” will be in the eyes of the consumer, not the manufacturer. I was particularly interested in the reference to “outcomes are the new benchmarks”.
“Ultimately if clients want their investment objectives to be driven by clean energy, or demographics, or healthcare, then we as an investment profession must deliver that. Of course that isn’t a problem – the technology exists to be able to slice and dice the investment universe to provide them what they want, but the “difficulty” might be the performance measurement angle.”

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