Who will be the winners and losers in Asset Management in 2022?

By Thomas Chevalier, Executive Director, Temenos Multifonds

The asset management industry as we know it has changed forever, and for the last two years, the industry has faced a time of unprecedented demands that will ultimately produce new winners and losers.

In a report last year, The Boston Consulting Group (BCG) stated that the asset management world had emerged from the global pandemic in a position of strength; investors had amassed more capital, were more confident and more risk averse. This led to new interest in asset classes such as alternatives, and investing in new geographies, which both quickly have become vital to business growth.

Even as the 2022 begins, we already see this alternatives trend, particularly in private equity, emerging across the globe*. Additionally, whilst many asset management firms were lagging behind the fast-paced innovation taking place in the banking world, now we are beginning to see a landscape of asset managers who have taken the leap to digitise their businesses, from adopting robo-advisors to digital investor onboarding and self-serve client portals.

As the medium-term outlook continues to improve, tomorrow’s winners will be the ones most prepared for this multifaceted change in. Key to this will be two business strategies:

1. The post-pandemic environment has shown that having a shortsighted view of progress based on the increasing quarterly profit sheet is outdated; with long-term investment in technology infrastructure becoming a key competitive lever as digital solutions become an industry status-quo.
2. Forward-looking asset management firms will have to adapt their portfolios, their client services and investment strategies in response to market appetite. These solutions will range between developing new innovative products for investors, gaining a competitive edge in advanced data and analytics and moving to the forefront of environmental, social and governance (ESG) strategies.

Technology’s competitive edge

For the vast majority of firms, investment in new technology has begun with the low hanging fruit, typically robot process automation (RPA), with one of the biggest impacts being the decrease of reliance on offshoring and the outsourcing of key functions, i.e., IT engineers.

As we know, many back-office processes are very labour-intensive, but with evolving artificial intelligence (AI) models, and new levels of automation increasing straight through processing (STP), there is huge potential to move away from offshoring and only keeping on staff who are process experts or accounting experts. Thus, increasing the effectiveness and efficiency of service delivery.

Beyond automating processes, many back-office operations use fragmented IT platforms, with teams that are still methodically replacing the pieces of the puzzle. Instead, the industry needs to invest in developing an integrated framework so that all of the disparate elements of front, middle and back office can communicate with each other. This requires a sophisticated Application Programming Interface (API) framework, around the core, to seamlessly integrate internal and external applications.

If we’re honest with ourselves, we know back office operations and in particular platforms like fund accounting systems are rarely the areas that attract innovation. Instead, innovation is usually focused on the front office (market-facing, end-client engagement, distribution channels, investment decision making). For the back office, there are no start-ups entering the market and forcing the pace of change in the same way we have seen in the front office, therefore the onus is on investment firms themselves to jump before they are pushed.

It is essential that asset managers are planning for the future and calling for their boards to invest in their technology infrastructure and integration. Without it, the demand for increasingly sophisticated solutions from investors across a host of asset classes, capabilities and geographies cannot be met. Instead, in three to four years from those asset managers who fail to invest, will be left behind.