The asset management industry has to face three different types of challenges.
1. First, a new environment, with the rather new fierce competition between bigger and bigger players, with the emergence of new players (SWF, pension funds …), the low rate environment, the changes in regulatory constraints. One of the ambitions of this paper is to present how to cope with the current environment.
2. Second, the emergence of megatrends: how to play demographic challenges, climate change, technological revolution, innovations, how to play social, ethical, and behavioural values… The second ambition is to answer this question: how to invest and make money in investing in megatrends and disruptions?
3. Third, to cope with a real disruption: how will what we can call Watsonisation (the development of cognitive computing), Googlisation (the availability of a greater volume of data), Amazonisation (the power of platforms), Uberisation (hatching new business models) and Twitterisation (doing business in an increasingly connected and collaborative world) … reshape – or not – the asset management industry? Last question to address: how to adapt business models, survive, be efficient and profitable in such a changing environment? Tech remains one of the largest sectors in the world economy, but in today’s new economy, practically all corporations – small and large – are in technology, directly or indirectly.
Some of these questions can be addressed to any company that manages assets and risks: insurance company, pension funds, central bank, endowment, mutual funds…
Investing in megatrends has several advantages: it is a good way to invest in future “winners”, to go away from secular stagnation themes (weak growth, low rate environment) and to gain greater exposure to secular growth, by reducing exposure to purely cyclical factors and profiting from thematic approaches. It is also a good way to find a more favourable risk/ return ratio, to invest where risk is rewarded.
The asset management is in the business of disruption, which explains why 73% of American CEOs and 61% of CEOs worldwide think that new competition is going to disrupt their industries in the next five years; according to those surveyed, newcomers will disrupt their activities or preserve their business models but apply new technology to them. Portfolio management will be extensively redefined as cognitive computing and the resulting analyses more extensively use the resulting data and methods. Artificial intelligence, big data and platforms will impact the business models. The product distribution process will also be extensively impacted by strategies focused on data and online platforms. Big data give asset management companies new opportunities to improve investors’ knowledge (risk culture, shared knowledge, better understanding of the business lines), engage more deeply with investors, and understand their ever-evolving preferences. Companies having the capacity to develop infrastructures and invest in innovation will also have competitive advantages that will be hard to counter. As investment activity becomes more data-driven, because of regulatory and investor requirements, the quality of transactions and trading platforms will be an increasingly important competitive factor. Blockchain in particular will make it possible to automatically enter any online trade and provide full transparency on all transactions: By eliminating intermediaries and providing a reliable, transparent tool, blockchain can cut costs (fewer error reconciliations, greater simplicity), accelerate settlement (quicker validation), increase solidity (little risk of failure or error), and increase transparency (with rapid, simple, efficient, low-cost oversight). Last but not least, the asset management companies will need people who have the right skills for this new business environment, in particular top-flight data specialists and developers of algorithms adapted to trends in the business lines.
All in all, to remain competitive and profit from new opportunities, management companies must think more about their business models and look beyond simple improvements. Asset management is now in the business of disruption. This requires new thinking, a conscious shift in mentality and effective leadership on the company and industry levels. These are undoubtedly the keys to future success.