Banks and insurers witness their captive asset management unit as a latent token for monetization during the time of a crisis. Since the value of this token is dilapidating, the potential sellers are getting inclined to close a deal, leading toward an increased consolidation.
FREMONT, CA: The asset management industry has been through an eventful year recently, where unpredictability became the norm. Several trends in asset management can affect the industry in the coming years, and the three underlying themes that dominate are technology, efficiency, and doing the right thing.
Active Front Office:
The outsourcing interaction tends to focus on cost reduction in the middle as well as back-office processes, but it needs to come to the front. Open-source analytical and code libraries are multiplying, and access to the enormous amount of data generated by the online world has gone increasingly open. It involves a declining dependence on armies of in-house coders and data scientists along with greater use of ready-made tools and external resources. It might have a critical implication for portfolio managers who need to be fluent in this world.
Dynamic Ownership Mindset:
Managers need to be ready to define themselves by how they invest in something rather than in what they spend. Managers who are looking for a compelling case as to how they can outperform under challenging markets should shift from active management to an active ownership mindset. In an active ownership mindset, the typical holding period
is likely to be more than eight-to-ten years, unlike a traditional one-to-three. The long-term investing approach can help to differentiate the managers who can credibly frame their value proposition with such mindset.
Search for Greenfield:
The outdated asset management tech architectures complicate simple upgrades unnecessarily and also make them costly and unrewarding. It has come to a crunch point for the asset managers with the traditional incremental approach. Some might heed lessons from the banking sector, where greenfield tech builds stand well-established, with newcomers and incumbent players. The center of the greenfield approach is the data integration layer that allows AMs to get into a wide-range of third-party services and apps.
Monetize Data Analytics:
Some firms have developed the conversion of sales leads by 20-25 percent by applying smart data analytics in distribution, but there have also been exceptions. For many other firms, the ROI of the investments done was limited. They still have to figure out how to translate the capabilities into developed decision-making across the organization. Rather than pushing the limits of analytical sophistication, firms took a back to basics approach by re-focusing their efforts on detailing apparent uses. They also worked on getting better business engagement, improving core workflows and data models, and building solutions for front line users and not for data engineers.
Separately Managed Account:
Developments in technologies are offering separately managed accounts (SMAs) cost-effectively at much lower AuM levels. The advantages of SMAs include personalization, tax/ESG overlays, and reducing the liquidity drag inherent to fund structures. Technology-enabled SMAs can make these benefits available to the market and DC plans through customized Target Date Funds. It can be considered a threat to those that are excessively reliant on traditional fund structures.
Do the Right Thing:
The discussion for diversity in asset management has moved from proving the business case but to doing the right thing. Asset managers require leading by example if they want to endorse changes in their investee companies. The prominent diversity players are openly stepping up their company’s’ as well as individual goals. There is a need for more asset managers who aim to make the industry and the investees more diverse, wide-ranging, and attractive workplaces.
Cybersecurity and Non-Financial Risk Management:
For an asset manager, cyber, technology, and data privacy risks are significant under increasing regulatory pressure and owner expectations. But there are asset managers who struggle to recognize their most critical non-financial risks and end-up delivering reports that affect business decision-making. It is necessary to have cybersecurity and enterprise risk management as essential priorities for an asset manager. It can help them to improve their abilities to identify, prevent, detect, and counter the risk events.