Predicting the Future of Asset Management

15. October 2018 | Drooms Global

Technology is shaping the asset management industry, and has the potential to transform processes, operations and systems, creating something different for future generations to enjoy. So, what will the future look like and what role will we play? What kind of short and long-term predictions can be made? How can today’s leaders continue to succeed in the future?

Predictions are never easy but can be made especially tricky when paired with a volatile global political environment. The rate at which technology is advancing complicates matters further still. In the words of Heraclitus, “The only thing that is constant is change”. The quote is rather fitting for the world of asset management especially in the modern world.

Although forecasts are difficult, having an eye on the future is crucial for a competitive industry where success relies on your ability to be at the forefront of it all.

Major industry drivers

To understand long-term trends, it’s worth considering the industry’s current landscape and what drives transformations. The asset management sector has largely been rocked by narrow profit margins and stagnancy, creating a challenging environment for industry operators.

Underlying conditions challenge almost any industry, this is especially true for asset management. The reasons behind the hard-hitting competitive landscape can be dissected into three core drivers. A modern asset management company cannot operate without consideration of:

  • The regulatory framework
  • Customer preferences
  • Advancing technology - it’s not all about Artificial Intelligence

The three often influence each other and will certainly continue to play a major role in setting future trends. Technological advances are a big reason governments and multinational organisations are having to adjust regulatory frameworks. Current generations, on the other hand, have their varying preferences regarding the use of technology and understandably so.

Top Trends

What does the asset management industry look like now? How are the three drivers influencing it? There are a few big trends asset management companies have been paying attention to over the past few years.

The search for cheaper investment funds

According to a Deloitte 2018 Investment Management Outlook report, the industry has had to start adjusting to investor preferences by shifting the types of funds on offer. According to their data, investors are hungry for low-cost and passive funds, with market share of front-end and back-end load share classes diminishing.

Managers are responding to this in many ways. According to an investigatory article by Christopher O’Dea published in IPE, the focus has encompassed everything from factor investing and risk parity to smart beta testing. However, current trends point to exchange-traded funds (ETFs) in particular.

Company reorganisation

Another interesting trend has seen asset management companies strategize to increase their organisational agility in response to the changing regulatory framework. Deloitte predicted in its report that the industry would potentially witness more companies “breaking down existing tasks into components” and therefore, become more adaptable and operationally flexible.

This is especially evident in the case of technology. Asset management has been adopting cloud computing quickly due to its ability to improve agility. The use of virtual data rooms can have a capability enhancing effect on asset management.

The increasing role of the EU

When it comes to regulatory compliance, the world of asset management is becoming increasingly EU-centric. The most obvious example of this has been with the union’s introduction of the General Data Protection Regulation (GDPR), making many companies change their behaviour and terms of service, no matter where operations sits.

As part of their predictions for 2018, Oliver Wyman foresaw the European regulation going global with the exception of the US where regulations were predicted to loosen considerably under Trump. The rest of the world is following the EU agenda, and this could well be the case even beyond Trump’s time in office.

Future trends

What kind of trends should the different players in the industry be focusing on? How are top drivers going to impact the future?

There are three major trends to look out for.

The ageing world and the new generation

In terms of investor landscape, asset management will be driven by two different, although somewhat connected, factors:

  • An ageing population looking for more retirement and healthcare solutions.
  • The new tech savvy millennial generation, knowledgeable about its investment options.

According to the PwC Asset Management 2020 report, the shift in investor base will result in the growth of sovereign wealth funds and focus on individual retirement plans, driven by local government in response to an ageing population.

The rise of data analysis

Data analysis is not new. But the future of asset management is likely to move it beyond the study of markets and different asset options. According to an ‘Investing in the Future’ KPMG report, client profiling will be the differentiator between successful and unsuccessful asset managers.

The way technology is harnessed will play a big role in the sophistication of customer profiling. It can help streamline the marketing of assets for example, reaching a much wider audience as a result.

Asset managers will also have to look beyond the current landscape and analyse and understand a much wider audience. The market is still largely controlled by the western consumer but the improving economies in Asia and Africa will bring about change.

A sustainable and social approach

Asset management will need to take a socially transformative and sustainable approach. Christopher O’Dea pointed out in his IPE article how the US experience is already showing signs of this with the legislature’s efforts to transform the retirement investment account.

Corporate accountability for environmental, social and governance (ESG) issues is already a focal point for asset managers but many predict it to become even more important over the next few years. A 2017 survey by Morgan Stanley highlighted the fact that 86% of millennials are looking into sustainable investing. Although already on the radar for companies, it’s expected that part of the change will be driven by legislative and regulatory pressure.

Preparing for future developments by improving portfolio management

In order to respond to the above challenges, improved portfolio management will be a critical part of the process enabling asset managers to better respond to specific developments and the bigger picture.

By improving portfolio management with a virtual data room, an asset manager can:

  • Utilise the latest technologies and harness them for improved asset management.
  • Be more agile in responding to regulatory pressure.
  • Offer customers a quality portfolio.

A virtual data room does not just improve access to data and offer real-time data analysis. The technology responds to the informed customer and improves the asset manager-client relationship.

Greenwich Associates’ research stresses the importance of the relationship. In their study, top-notch persuasion and presentation skills were found to be critical for investment managers aiming to create relationships with consultants.

Openness and transparency are not just needed between clients and asset managers. As the predictions above show, the increasing regulatory pressure will make the industry as a whole more transparent.

For the asset management industry, the future is international, adding to the complexities of portfolio management. For asset managers, the good news is that the right tools can limit and reduce these complexities. Predicting the future is hard but staying in charge of trends is possible.