“In this world, whenever there is light, there are also shadows.”
It’s a quote widely attributed to the Japanese manga artist Masashi Kishimoto. But – and stay with me here for a moment – it’s also appropriate for describing today’s shifting landscape of capital markets and asset management.
Over the past decade we’ve seen a massive shift in capital markets to the buy side. Today, roughly 90% of the industry’s entire economic profit is powered by and attached to this segment of the market, according to Accenture research.
However, the rising tide of assets under management (AUM) over the past several years has essentially spared the asset management industry from having to confront the issue of costs. We are now at a critical inflection point: according to our research, from 2014 to 2018, 25 publicly traded asset managers increased their AUM by 22% while revenues were up just 1%.
Factoring the current pandemic into the equation, it’s clear that the old asset management playbook is getting disintegrated right before our eyes as we confront new ways of working, thinking and operating.
The industry has already done it. If the events this year have taught us anything, it’s that the industry’s workforce could operate almost entirely remotely – and that digital has become embedded in the very fabric of our work, finances and personal lives. So, what does the next digital innovation wave look like?
The digital agenda is fast becoming the digital imperative
I believe we’ve reached a defining moment where the industry needs to undertake a serious rethink of innovation to fundamentally reshape the art of the possible.
Approached and executed in the right way, innovation has the potential to unleash and deliver real, transformed and sustainable economics for asset managers. And doing this successfully would require firms to tear up the old industry playbook and embrace a new way of working and thinking – one that’s designed for how we live, work and invest today – and one that’s digital at its very core: the digital agenda is fast becoming the digital imperative.
So, it’s time for a new playbook for the industry.
Beyond digital, this playbook is focused on leveraging data, analytics and artificial intelligence (AI) to introduce digital interactions across the entire investment management ecosystem, with humans and machines working together seamlessly. As I often point out, once you get past the notion of the machines coming for your job, they’re actually the very best vehicle for introducing agility and flexibility in the operating model while fundamentally bending the cost curve.
A new playbook for the industry …
That’s why the new playbook cuts across the entire investment landscape, process and lifecycle – from digital product manufacturing and distribution, to digital client engagement and experience, to trying to secure a lasting competitive advantage.
Imagine if asset managers were able to truly combine the diverse disciplines of behavioral science, AI, cognitive computing, sentiment data and fundamental research to anticipate market movements. The same could be considered for investment decisions and portfolio management behavior. And, if your employees made data-driven thinking core to who they are and what they do to arrive at faster decision making. And this is just one example of the power of the new playbook.
At its core, data analysis is more than an investment edge. The capabilities represent the next operational, cultural and behavioral change that could transform the industry – while keeping the client at the heart and intent of every initiative.
… that’s flexible and forward-looking at its core.
I recently spoke at the FT Future of Asset Management summit on this topic. Watch my video today to hear a short introduction to this new asset manager playbook: digital by default. And stay tuned to my next blog that will dive deeper into the topic of AI in asset management.
In the meantime, if you’d like to talk about your own innovation journey or discuss any ideas you might have around digital, please reach out. I’d love to hear from you.