These are difficult times for asset managers. Not that the foundations of investing have changed, investing will always be about efficient interpretation of information and disciplined decision-making. But the asset management industry gets increasingly wedged between “Big Data” on the one side and a more demanding end-investor on the other.
This is an opinion piece by Walter Brägger, Partner at Sanostro AG.
Who participated in a panel discussion on “Innovation and Disruption Applied to Institutional Investing” at the ‘Global West Government Fund Roundtable Conference’ in London.
The Big Data Tsunami
A huge information wave is hitting us every day like a phenomenon of natural violence. What does all this data mean? There might not be much insight in one single information snippet, but the entirety of this data contains all the investment value there is. How can we find this value under a huge haystack of noise? How can we aggregate the snippets into one picture? The answer will be quantitative. Artificial intelligence (AI) and machine learning have been around for years, but their importance is now growing rapidly. A task not every firm can manage alone. Specialised firms will emerge to collect and analyse data. Others will concentrate on aggregating this condensed info into an overall picture. Data analysis as-a-service will become the norm.
Digitalisation is partly responsible for the data overload, but it also provides solutions to address the challenge.
Retail investors demand a more tailored service
If Big Data is the “upper jaw” biting into the asset management industry, the “lower jaw” comes in the form of a more demanding end-investors. Today’s consumers are increasingly conscious about their financial future. The move from defined benefit pensions to defined contribution has paved the way to more awareness. More awareness demands greater say. And the experience with non-financial sectors (retail, communication) is further shaping consumer expectations about what constitutes a good financial service: more tailored and more cost-effective solutions.
How will this impact Asset Management?
As a consequence, asset management will have to move from ‘fund manufacturing’ to ‘client relations’. With focus on investor communication and the assembly of individualised portfolios as a result of this communication. Smart robots will analyse the investor’s needs, chose the right portfolio components and wield them together to meet client and regulatory constraints. Smart investment platforms will become the face of the asset management industry.
Asset Managers will fight for the best user experience, the most individualised investment strategy, at the lowest cost.
Today’s Robo-Advisors are just a tender start. For most asset management firms this will require more specialisation and a change in business model. Today’s closed internal value chain of research, product design, implementation and distribution will increasingly break up. ‘Client relationship’, ‘production of smart portfolio components’, ‘assembly of tailored portfolios’ will be services provided by specialists. Firms need to decide in which part of the value chain they see their competitive advantage.
And in the meantime?
We live in this meta-era between “traditional” discretionary and AI-quant. We see the writing on the wall, but the asset management industry is – grosso modo – still struggling to evolve from yesterday’s business model. And we are puzzled by all this new super-fast-growing world of unstructured data. Artificial Intelligence is still in its infancy. As an industry we do not fully understand how to best use the new technologies in the investment process. But how you deal with Big Data will become a deciding factor between success and not-so-much success. At Sanostro, we believe that quant managers have the right pedigree to successfully adapt to the changes. They have excellent data analysis capabilities and are already dealing with large data sets. This is why Sanostro teamed up with some of the best quantitative funds to provide you with systematic insights. Sanostro can be your gateway to collective data analysis. One step into the future.