SGSS Global Investment Management Survey - Part 5
Talking about the buy-side industry’s main levers for transformation today means discussing the potential of new technologies.
Indeed, robo-advisors, Big data, Blockchain/DLT, RPA, Artificial Intelligence and their various applications are part of every conversation. With the FundsDLT initiative in Luxemburg to optimise the fund subscription process, our sample is aware of the use of DLT technologies. In France, the Iznes project to set up a new fund register platform with Blockchain is also being scrutinised by the entire marketplace. Other initiatives are also quoted.
And naturally, for our respondents, digital and new technology topics are at the top of the list, with 84% of them considering these issues to be key elements for defining their development strategy.
By 2020, will the market reach the 5% of assets managed by robo-advisors that was anticipated back in 2015?
Does it mean that European Asset Managers, Pension funds, Insurance companies or Private Equity/Real estate managers in our sample have made up their minds about their priorities from the long list of options and potential partners that could support them in those adventures?
Is it also clear for everybody which use should be prioritised and what the ROI associated would be?
These are the questions presented hereafter.
To be digital or not to be!
Take new technologies onboard, but be careful not to open a Pandora’s box! New technologies are always seen as a business enabler or useful for risk mitigation. The difficulty is finding the right digital strategy.
There is no doubt (for our entire sample) that new Techs will have a disruptive effect on their business. Nevertheless, a significant portion are still questionning their return, only a slight majority of committed has already started to design initiatives. The true believers are already in a testing mode with Robo-advisors or RPA initiatives. Industrialisation will take more time.
Among Asset Managers, commitment is a question of size. Large ones are the most active. At the same time, 38% of the sample are in a "wait and see approach".
Asset Owners focus on altering IT systems to address the challenge of digitisation. The vast majority of their digital initiatives are dedicated to improving communication channels with their clients (web, mobile). Size is also a criteria in this R&D challenge where mid-size players have to deal with limited investment capacities. This is not preventing some Asset Owners from working in a ‘test and learn’ mode with numerous start-ups.
All in all, PE/RE players seem to be the less committed. A few do not expect any substantial short-term impact on their activity, and more respondents consider they do not have the resources to undertake real initiatives.
Data, data, data!
The challenge is how to combine all existing fund and investor data in order to use it for client requirements and regulatory needs.
For 39% of the sample, the priority is to leverage data, 45% for Asset Managers, with a peak in the segment of the smallest players. It shows a strong desire to qualify the new technologies as top priority, but also effectively demonstrates that applications are not clear yet.
The power of data also appears to be assessed by some respondents with regard to the threat that GAFA and some fintechs represent for existing institutions. On the contrary, many consider that the capacity of those new entrants to disrupt their industry in the coming years is overestimated, as investors will continue to require humans to monitor their investments, which is probably not an opinion shared by their US peers…
Naturally, robo-advisors are the most mentioned new technology, with 32% of our global sample intending to use it.
Blockchain was mainly brought up as a buzzword, with no visibility yet on an emerging model or strong use cases by the vast majority of respondents. Nevertheless, some respondents are already testing the concept with the aim of leveraging it on a larger scale. Its potential interest for managing registrars but also KYC, non listed securities issues or the transfer of insurance contracts and property through smart contracts are all generally well accepted, but a clear Business case is missing.
Work alone or with others?
Partnerships will be key - no one can do this alone. We will not be the frontrunners, but remain interested in learning from any developments through our suppliers. We have huge expectations vis-à-vis large suppliers to guide us and provide us with innovations.
The majority of our sample find that exploring new territories on their own is almost impossible: they expect close dialogue with suppliers, peers and fintechs to drive their transformation process.
Two thirds of smaller Asset Managers are expecting to partner with their existing suppliers, considering their limited ability to invest, and sometimes to appoint a Chief Digital Officer. Larger players are more committed to partnerships with fintechs (29% of the large Asset Managers), taking part in incubators or directly investing in solutions.
Beyond the possibility of partnerships lies the issue of data protection, which is critical for many, especially Asset Owners. Beyond regulations such as GDPR, some of the latter consider client data as strategic, and would not envisage outsourcing for this very reason. Nevertheless, a substantial percentage of our respondents are open to sharing data, expecting to have it enhanced in return.
Huge potential, but what is the ROI?
Every business line is reviewing how to use new technologies to increase efficiency and effectiveness. Blockchain makes sense to manage registration processes, cut costs and make fund trading easier.
Operational efficiency and cost savings are naturally the main objective set by our respondents to leverage new technologies. In particular, 38% of Asset Managers believe in the potential of robotic technology to contribute to optimising processes: 15% of smaller Asset Managers think that new technologies can help them in asset allocation, for example.
They also expect an improvement in operational risk monitoring and the creation of a more robust environment that allows them to absorb new business more easily and provide a better consolidated view of the client base, for reporting to regulators for example.
Increase client knowledge is also a very clear target to enrich the client relationship but also to develop innovative products based on predictive models. In this respect, Blockchain solutions (DLT) are definitely regarded as a powerful technology by 28% of the largest Asset Managers, to manage registrar processes (trailer fees, customer experience, etc.)
Lastly, PE/RE managers have substantial interest in producing added-value reporting for regulators, as well as for partners and customers.