Believe it or not, the funds management industry is in better shape than it has been for years. However, disruption, due to a raft of technological developments, is happening now. Managers have to adapt quickly in order to survive, according to a paper by SEI Investment Manager Services.
SEI, a major US-based fund manager, administrator and consulting firm, says “this time it IS different”. Its 64-page report, ‘The Upside of Disruption: Why the Future of Asset Management Depends on Innovation’ analyses five major trends and concludes: “Our business is being buffeted by powerful external forces that are transforming the global economy—indeed, our very way of life.
“At the same time, the forces that have long fueled our success are ebbing or shifting, putting our framework of business assumptions into disarray. And all of this upheaval is happening at such an accelerated pace that management teams can scarcely keep abreast of the changes, let alone adapt to them. This is why we believe the future of the investment industry will depend on asset managers’ intention and capacity to innovate.”
The five trends are:
. “Watsonisation’ – cognitive computing is transforming how things are discovered, interpreted, decided and accomplished (named after the IMB computer that can beat humans in various creative endeavours)
. ‘Googlisation’ – data-smart companies are learning how to distill competitive knowledge from a vast sea of information
. ‘Amazonisation’ – online platforms are reshaping business dynamics and putting customers in charge
. ‘Uberisation’ – a fast-emerging business model that points to new ways of creating value and gaining scale, and
. ‘Twitterisation’ – technology has transformed how businesses communicate with, and learn from, their customers.
“Each of these five trends holds both challenges and opportunities for the investment industry—a set of prospects we ignore at our peril. Still, the purpose here is not simply to sound an alarm. Rather, we want to spark fresh thinking, exploration, and debate in the financial industry, a process that will need to be ongoing if asset managers want to keep thriving and growing in the years ahead,” the report says.
McKinsey’s 2015 asset management survey describes an industry that is overall “in a robust state of health, with high-water marks being set for assets under management, revenues and profits.” The consulting firm reported that the assets of North American investment firms reached an all-time high of US$31trillion in 2014. Meanwhile, profits climbed 12 per cent to US$37billion and, “most impressively, operating margins reached 33 per cent, up 11 percentage points from the lows of 2009”.
The SEI report says: “Given the asset management industry’s strong financial performance in recent years, it would be easy for investment firms to slide into complacency—but that would be a mistake, especially at this juncture.”
Of the four major recent tailwinds – demographics, regulation, open architecture and market growth – the report says of the future:
. demographics, whereby the millennial generation is larger but poorer, will lead to more reliance on high-net worths and ultra-high-net worths. And there will be a growing number of small accounts.
. regulation will mean a continued proliferation of rules and complexity, with uncertain effects on asset flows.
. open architecture is now entrenched, it is not a ‘growth’ factor for managers and platform providers, and
. market growth, or lack of it, has seen 84 per cent of the total assets under management increase between 2009 and 2014 attributable to the market’s rise.
* Greg Bright is publisher of Investor Strategy News (Australia)