The year ahead will be busy for institutional investors and pension funds as they navigate political turbulence and speculations around when the economic cycle will shift. From an operational standpoint, we expect three strategic priorities to dominate in 2018:
1. A growing need to make sense of unstructured data – and use it. The industry is rethinking how to manage the generation, storage, transformation, usage and retirement of both structured and unstructured data. Players are also investing in a range of solutions, like data lakes, to generate new data-driven insights that are relevant to the core business, such as using artificial intelligence (AI) to manage foreign exchange based on macroeconomic data and country sentiment intelligence.
2. A strong push to refocus on investment management. Institutional investors and pension plans are increasingly looking to double down on core activities, such as security selection, and leverage an ecosystem of managed services providers to deliver on critical non-core activities like cyber-security, financial planning and analysis, and technology infrastructure.
3. A keen desire for scalability and simplification. Institutional investors and pension plans are investing in automation capabilities like robotic process automation (RPA), and shifting away from custom, on-premise solutions towards cloud-based, off-the-shelf, commercial solutions that enable greater scalability and business simplification.
Given these trends, institutional investors and pension plans are looking to leverage a range of emerging technologies to help shape operations. The more advanced players are investing in multiple technologies simultaneously, while shifting their culture to be technology- and data-enabled:
Cloud computing. Most industry players have a large installed base of traditional technology infrastructure and heavily customized, on-premise applications which are:
- Investing in transitioning to the cloud (e.g., roll-out Workday ERP) to access new capabilities and lower operating costs
- Looking for fully managed solutions that support scalability
- Experimenting with new cloud-based investment systems instead of relying solely on more established, on-premise solutions that don’t have a cloud offering yet
Artificial Intelligence and Machine Learning. Many institutional investors and pension plans are still in the process of rolling out data lakes and robust data governance frameworks. The most advanced peers have mastered these skills and are looking now at deploying AI and machine learning (ML) to improve investment decision making (e.g., producing investment research, supporting security selection in private assets, driving performance attribution and portfolio construction) and talent management, including automated screening of CVs and identifying at-risk employees.
Blockchain. Lower projected future returns, particularly in public markets, are driving leading institutional investors and pension plans to join industry consortia and work with regulators, utilities, and consultants to define future standards for deploying blockchain in trading and experiment with simpler blockchain use cases, such as regulatory reporting, commercial real estate management and audit/compliance.
Robotic Process Automation. Many institutional investors and pension plans are investing in RPA to reduce human error, refocus talent around higher value-add activities and manage overall costs. Given the scale required to drive efficiencies from RPA, many of the efforts by institutional investors and pension plans should be enterprise-wide.
Looking ahead at 2018 and beyond, emerging technologies like blockchain, AI, RPA, ML and cloud will likely help institutional investors and pension funds take advantage of unstructured data, refocus on core-managing investments, and simplify as they scale.