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Magazine Issues » September 2022

Sponsored Feature: The next catalysts for catapulting the pace of digitalisation

DigitalisationDigitalisation is likely to grow even more rapidly over the coming years Kavitha Ramachandran, head of business development & client management (Continental Europe) at Maitland, examines the possible catalysts for Digitalisation within the context of a rapidly changing global investing and market environment.

An article for professional investors only.

Over the past few years, I have examined the phenomenon of digitalisation in the fund services industry and written about some of the catalysts for its growth, including Brexit and the Covid-19 pandemic. The rate at which things are moving in the global investment world now means that digitalisation is set to grow faster than ever before.

Firstly, to understand the rise in digitalisation it is useful to look at the macroeconomic backdrop. Global fund manager Nuveen has recently released its second annual Equilibrium Global Institutional Investor Survey, which indicates that investors are reacting to a remarkable set of changes across many fronts.

Among the key forces at work are new uncertainty regarding rising inflation and interest rates, volatile markets, a spate of damaging weather and climatic events, and increased awareness of social inequality. Over the past years, ESG and impact investing have grown in importance and are now more relevant than ever.

ESG regulation is accelerating the pace. Regulations such as the Sustainable Finance Disclosures Regulation (SFDR) and the EU Taxonomy mean that asset owners and managers need to move swiftly to ensure compliance. They will need the data and technology to do so.

A rise in private markets and alternative assets investing

The above conditions are very different to what investors have experienced in the past years. As a result, there is a sense that fundamental long-term market dynamics have lost relevancy and investors are rethinking portfolio construction. Part of this reorganisation is a continued and accelerated move to private markets and alternative assets to achieve investment objectives.

Private equity and real estate continue to be top choices, with private credit continuing to gain momentum.

Private assets are often best suited to new innovation-focused industries, for example to cater for risks and opportunities of climate change in portfolios – as well as how to include diversity, equity and inclusion (DE&I) in the hiring process.

How will asset managers and fund service providers rise to the above challenges?
The answer is technology, digitalisation and more digitalisation. Providers need to develop enhanced data skills for the smart collection and management of Big Data. Technology will need to move apace with the move to alternative assets, needing skill in managing less liquid assets.

Managers will need to find new ways of managing returns versus costs and this will necessitate outsourcing yet more to fund administrators and those with the technology skills, to free up managers to work optimally in this continuously evolving brave new world.

What lies ahead?
The metaverse is around the corner, blockchain is the way of the future and the next- generation investor is likely to have a totally different relationship with technology compared to today.

Climate change, geopolitical change and post-pandemic conditions will all need to be interpreted and forecast through a new IT lens.

The pace of digitalisation is therefore only set to grow faster and harder, and we will need to check continually to see if we are on-trend and keeping apace.

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