What are the main takeaways?
The paper claims the industry is going to see change in the coming 12 months – more technology, more millennial involvement and more access to Investment Management (IM) firms for more people.
Investors are changing to favor low-cost funds. It is important for IM firms to make the case for alpha, in order to see more successes. Alpha is the active return on an investment – a show of the performance of an investment against a set benchmark.
There are more passive and less active funds now than in the years before. In order to save time and money, and begin making more profits, there will be new operating models (such as through technology). The important thing is for IM firms to become more agile.
Millennials are likely to become increasingly important for IM firms, so they should be establishing a relationship early.
They are a large portion of the unserviced customers in the US and internationally. Millennials and others have changing preferences. They are changing the services IM firms will need to offer in order to be successful.
There seems to be millions of customers with small balances who aren’t receiving services from IM firms – a lot of these being millennials. Technology has now reached the capability to acquire and serve these customers profitably.
But, what technology?
From cloud computing, which is becoming almost universally commonplace, making processes quicker and easier, to AI and other machine learning algorithms, technology is placing itself at the core of Investment Management firms.
Artificial Intelligence technologies are being developed for a greater number of funds. Fintech and robo-advice are expanding and becoming increasingly popular. Alternative data sources are constantly changing, but always being used.
Innovations in technology have enabled IM firms to have access to scalable, integrated systems. Under a variable cost structure, they simultaneously lower the overall cost of operation.
In 2018, of all the hedge funds launched globally, it is estimated that 70 percent will include investment processes supported by computer models, including AI and machine learning algorithms.
By utilising technology and alternative data sources for generating alpha, IM firms can experience growth and profits.
2018 is a year for digital in the Investment Management sphere. It is estimated that a US or European player will ultimately come to strike the balance in order to find the right customer experience and outperform the market in Assets Under Management (AUM) growth.
By choosing better talent, and thinking carefully about where to outsource, in order to supplement your inhouse talent, you can have better operating models which ensure long-term sustainability.
There is a need for greater agility in operating models, and to rebalance talent to support these operating models.
By controlling and monitoring processes, IM firms can ensure long-term partnerships and long-term business.
You can read the full report here.