“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”
This observation by Microsoft co-founder and philanthropist Bill Gates1 often springs to mind, when considering the sheer pace of change in the investment management industry. Anyone who doubts its wisdom should compare this year’s FundForum agenda with that from a decade ago.
FundForum 2018 streams such as FutureFinance 2.0, FundForum Ops, FundForum Global ESG reflect the scale and breadth of the challenges and opportunities facing the sector. In a world of few certainties, change is the only constant. This makes the ability to adapt a fundamental prerequisite, as the event’s organisers clearly understand.
While it is hard to underestimate the role played by technology in our daily and professional lives, especially with Fintechs disrupting established business models, many of the past decade’s changes in investment management have been driven predominantly by the search for sustainable yield. Policy innovation by central banks since the financial crisis has flattened yields in traditional asset classes, notably government bonds, driving investors to search for new sources of returns.
Markets in illiquid assets – including private equity, real estate and increasingly debt funds – have been transformed as a growing number of end-investors and institutions intensify their focus. According to alternatives data provider Preqin2, private equity real estate deals reached US$67 billion in Q1 2018, a five-year high for first quarter deal activity. Meanwhile private debt demand shows no sign of abating: more than three-quarters of fund managers reported increased investor appetite in 2017, according to Preqin3, while BNY Mellon-sponsored research4 suggests strong appeal across diverse sub-sectors, from commercial real estate debt to direct lending to funds of funds. The growth of alternatives and illiquids is prompting service providers such as BNY Mellon to deliver new asset servicing solutions to facilitate access at scale, supporting transparency and operational efficiency.
But perhaps the biggest asset growth story of the past decade has been ETFs, which have more than quintupled in market size since 2008 according to most industry estimates. Much of this growth has been driven by US investors, but it is becoming clear that Europe is evolving its more fragmented market and regulatory structure to facilitate latent demand. While MiFID II may lead to a further upswing in demand – by removing commissions and forcing advisors to recommend funds on merit – the industry must also adapt processes and infrastructure to reduce costs and drive growth, as noted in this week’s ETF Leaders panel session ‘How a new ecosystem is adjusting and starting to embrace ETFs in Europe,’ moderated by BNY Mellon’s Scott Coey.
Regardless of where yield is to be found over the coming decade, investment decisions and supporting processes invest will almost certainly become more data-driven.
As the digital economy generates a dizzying array of new sources of unstructured but potentially valuable data, existing information flows are being mobilised and analysed in more streamlined and customised ways. The impetus to explore data-driven opportunities for differentiation is fuelled by the threat of non-traditional competition. To succeed, the data solutions adopted by asset managers must be as individual as their investment strategies, as reflected on the session moderated by Daron Pearce, CEO of EMEA Asset Servicing at BNY Mellon, on use of data and technology by asset and wealth managers. Already, asset servicing providers such as ourselves are leveraging APIs and other new technologies to deliver data to clients more quickly and more flexibly to support process efficiency and investment insight.
However, we expect further change as other innovations – including artificial intelligence and distributed ledger technology – come of age. As use cases emerge for these and other technologies, it is worth remembering that they can change the competitive landscape in unexpected ways (e.g., adding high-quality cameras to smartphones). The investment management industry cannot lose sight of investors’ needs and must be alert and agile to remain aligned in this evolving market with the changing requirements of clients as they look to a best in class client experience.
What topics will dominate the FundForum agenda in 10 years? Rapid change makes prediction a risky business, but there is every possibility that demand for cryptocurrencies will have reached the mainstream, with asset servicing solutions having been developed to enable investment institutions to invest in and monitor crypto-assets in a secure and transparent fashion.
How mature the crypto-markets will be in 2028 is harder to assess. Even Gates, who made his observation on the pace of change over 20 years ago, might wish to update his views in light of subsequent events. But his follow-up comment remains timeless. “Don't let yourself be lulled into inaction.”5
Media Contact:
Bruce Wraight
+44 (0)20 7163 4716
+44 (0)7834 289638 (mobile)
bruce.wraight@bnymellon.com
1The Road Ahead – Bill Gates (1995)
2http://docs.preqin.com/quarterly/re/Preqin-Quarterly-Real-Estate-Update-Q1-2018.pdf
3http://docs.preqin.com/reports/Preqin-Special-Report-Private-Debt-Fund-Manager-Outlook-H1-2018.pdf
4The Race for Assets – Alternative Investments Surge Ahead (November 2017)
5The Road Ahead – Bill Gates (1995)