In 2020, global investment management industry has undergone profound changes under the influence of COVID-19 pandemic and technological innovation. Two major trends stand out: the accelerating adoption of ESG investing and the digital transformation empowered by new technologies like AI and big data analytics. Asset managers need to catch up with these trends to better serve clients and generate sustainable alpha in a fast-evolving market environment.
The rise of ESG investing
Environmental, social and governance (ESG) factors have become mainstream in global investment process. Credit rating agencies like Moody’s and S&P have incorporated ESG risks into their credit ratings. Asset owners including sovereign funds, pension funds and endowments are allocating more capital into sustainable assets and impact investment. Leading asset managers like BlackRock, Goldman Sachs and UBS are building ESG data analytics capabilities and launching tailored sustainable investment products to meet the growing appetite. The COVID-19 crisis has cast a spotlight on the ‘S’ factor – worker health and supply chain resilience. This will catalyze more investors to integrate ESG factors systematically into their investment framework.
Harnessing big data and AI
Cutting-edge technologies are transforming the entire investment value chain. In asset management, AI techniques like machine learning and natural language processing are being used for alternative data analysis, portfolio optimization, risk management and client profiling. Cloud computing provides the infrastructure for storing and processing huge amount of data cost-effectively. Robo-advisors powered by AI are gaining popularity among retail investors by providing low-cost, customized investment advice and portfolio management. To keep the competitive edge, incumbent asset managers need to ramp up technology investment, upskill their talents and collaborate with FinTech startups.
The hybrid advice model
The COVID-19 pandemic has accelerated the adoption of digital channels and self-service tools by investors. However, human advisory remains highly valued, especially among HNW and ultra HNW individuals. Leading asset managers are embracing the hybrid advice model – integrating digital capabilities with human advisors to deliver omni-channel client experience. Advisors can leverage robo-advice to handle basic services and focus on complex planning and relationship management. The hybrid model caters to investor needs across all wealth segments in a flexible and cost-efficient way.
Consolidation among asset managers
Fee compression, growth constraints in mature markets and high technology investment needs are driving consolidation among asset managers globally. According to PwC, assets acquired via mergers and acquisitions surged to over $100 billion in 2020, 2.5 times of 2019 level. Mid-sized active managers are joining forces to achieve scale and operating efficiency. Larger players are acquiring specialized boutiques to obtain expertise in attractive asset classes. Smaller firms lacking resources are looking for partnerships. These strategic deals will reshape the competitive landscape and create more diversified asset managers.
The investment management industry is undergoing strategic transformation to adapt to the new normal. Companies who take timely actions on ESG integration, digitalization and business consolidation will stand out and deliver superior value to clients in the post-COVID era.