An Industry Driven by Digital, Data and Artificial IntelligenceAsset Managers (as well as the wider financial services industry) have gone through difficult times over the past 9 years, and regulators have hampered their growth and imposed significant burdens on them to continue to do business.
Today, the sector is going through a structural, transformational change. Why? Because these increasing regulatory pressures can be difficult to manage, and, because investors want a better return on their money, a reduction in fees and middle men, new market opportunities and much more transparency and control.
In a time of low interest rates and volatile markets there are many existing challenges that are fuelling the need for drastic change within the industry.
Business models rewarding Assets Under Management (AUM) rather than actual performance,
the industry does not deliver the promised ‘Alpha’,and fund managers
and private banks can be inefficient when it comes to investing in new market opportunities, instead preferring to stick to traditional investments
Embracing Digital to Transform the Industry
The future as we see it, will be an industry that is almost entirely digital The end-to-end management of investments will be completely automated, decisions will be driven by aggregated data, algorithms and risk models, and finally, the whole stack will be supported by blockchain technology – a hot topic within the Financial Services industry right now.
Data-Driven Investments, Supported by Artificial Intelligence (A.I.) & Machine Learning
The use of aggregated data with analytics, A.I. and machine learning applied are providing new risk models that enable a much better transparency of the risk in any investment. It is also proven to improve the overall performance of an investment portfolio and provide an opportunity to create predictive models that could forecast the impact of future events.
With improved risk management and a clearer understanding of performance, Asset Managers will be able to make smarter decisions much faster on behalf of their investors. Going a step further, there are already companies out there that have removed the need for human interaction entirely, processing every single trade using only artificial intelligence.
Let’s also not forget the rise of Robotic Process Automation (RPA) within the sector. It is certainly something that should be considered as part of the digital transformation of the industry, but we see it as only a small part of a much bigger shift to the digitally integrated and automated Asset Manager.
Distributed Ledger Technologies (DLT) & Blockchain
Traditional trade processes within asset management can be slow, manual, cumbersome and filled with risk when reconciling and matching. Each party in the trade lifecycle (e.g. broker dealers, intermediaries, custodians, clearing and settlement teams) currently keep their own copy of the same record of a transaction, creating significant inefficiencies and room for error.
Blockchain technology, a type of DLT, would simplify and streamline this entire process, providing an automated trade lifecycle where all parties involved in the transaction would have access to the exact same data about that trade. This would lead to substantial infrastructural cost savings, effective data management and transparency, faster processing cycles, minimal manual reconciliation and the potential to even remove the middlemen altogether.
Reap the Rewards
For investors, this digital transformation of the asset management sector will offer a multitude of much-needed and sought after benefits:
Complete transparency of their entire portfolio, visibility of asset performance, real-time risk calculations and detailed data to better understand their assets,
control of assets using digital channels and real-time adjustment of portfolios, and
easier management of active or passive investment strategies, diversification and easier regulatory reporting and analytics
Taya Vernon, Head of Marketing at Fintricity Consulting