Markus H Ruetimann argues that the pandemic has highlighted the asset management industry’s need to rejuvenate itself.
Within just a few months, the outbreak of the Covid-19 pandemic accelerated a long-overdue recognition of the importance of resilient technology and erudite leadership.
Since then, we have had to learn how to lead a business via a laptop as well as how to lip-read participants on a video conference while on mute. Working from home is difficult for most and communicating through a screen can never replace the intensity of human interaction.
According to University of California professor Albert Mehrabian, only 7% of communication is words, 55% is body language and 38% is the tone of the voice. It is thus not uncommon to either misinterpret comments or misdiagnose the team’s sentiment.
Guiding a workforce that is extensively remote requires new, more inclusive hierarchical structures and communication channels, virtual and physical collaboration space for teams and a platform through which expertise and knowledge can be shared. Future talent pools will need diversifying. IT pioneers and data scientists are likely to play a bigger role than fund managers and data administrators going forward.
Setting new leadership norms to create cohesion, collaboration and trust between virtual teams requires IQ and EQ, as well as a healthy amount of DQ (decency quotient). The latter is particularly important as it enhances a business culture and thus sustainability and success, at the same time reinforcing the imperative of diversity. Augmenting employees to become stakeholders of the business, both in terms of remuneration and decision-making, will be critical to attract talent.
The financial services industry has proven reasonably pandemic-resilient as trading and investment activities continue, in the main, unabated. Nevertheless, cushioned by enticing profit margins, the institutional asset management industry has for many years talked about the need to reinvent itself in view of the ever-expanding digital economy.
Only a few firms appear to have taken foundational steps by investing in technology to replace legacy systems or hiring talent from outside their industry to prepare their skill pools for a tech and data-dominated operating environment. Unlike investment banks and retail financial services providers, asset managers have not been disrupted… yet.
The pandemic has accelerated, not slowed down, the need to address and execute critical success factors such as:
- improving digital client experience and self-service;
- enhancing the curation, visualisation and commercialisation of data;
- embracing cognitive technologies to provide quantitative data for decision-making on client insights, investment research and risk-modelling;
- expanding digital distribution channels, in view of the competitive offering from existing retail e-commerce platforms;
- innovating new investment products and supporting digital asset classes;
- reducing operating costs across the investment research and portfolio management functions through technology; such as artificial intelligence, natural language processing and machine learning;
- augmenting IT architectures to seamlessly interconnect proprietary systems with third-party solutions via APIs;
- enhancing the organisation’s resilience and agility to respond to potential future crises, including the likelihood of considerable cyber threats;
- diversifying the talent pool by incorporating experience from other industries; and
- adjusting the organisation’s characteristics and knowledge to a world which is less predictable and more challenging.
With technology playing a strategically critical role in the competitive battlefield, future asset management CEOs may well have had experience in running businesses in the technology, e-commerce or engineering sectors. A few have already elevated their IT leaders to the top management committee and even fewer have recruited non-executive directors from the tech sector on to their boards.
Regardless of whether it is in-house or co-sourced, having access to a diversified talent pool that can simplify and automate core processes is vital. Technology and data management functions are becoming business-critical competences. IT and operations teams are no longer just internal service providers or the ‘back office’. Rather they are central to enabling, protecting and supporting the growth of a progressive asset management business.
Digital alpha, the generation of investment alpha through the application of artificial intelligence and machine learning, is clearly upon us. For active fund managers, the challenge will be the level of performance fee they can charge for digital alpha. Fees are likely to be akin to those levels applied for quant active products – at best.
There are clear signs that the asset management industry has been shaken by the operational, commercial and social impacts of the pandemic. Now is the time to lay the foundations for a gradual metamorphosis into a talent- and technology-led organisation.
The barriers to entry into retail and institutional asset management have never been lower, with e-commerce and global technology providers gradually stirring up traditional operating models. They have the technology, they have the data, they have the money to invest and all they need now is to acquire the talent. Regulation is no longer a material barrier to entry.
For those asset managers that are not taking decisive actions now, they will be shaken, stirred and disrupted, or worse, they will stand still and fade away.
Markus H Ruetimann is CEO of Hardy London and chair of Aprexo Group. He is also the ex-COO of Schroders
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