The investment management industry saw several key trends emerge in 2020. The COVID-19 pandemic accelerated the rise of sustainable investing and ESG integration. Digital transformation also became a top priority for investment managers looking to improve efficiency and connect with clients remotely. Key trends included a growth in sustainable assets, increased adoption of AI and big data analytics, robo-advisors going mainstream, and a shift towards more personalized client engagement through digital channels. The pandemic emphasized the importance of ESG factors in evaluating risks and opportunities in investment portfolios. It also forced firms to rapidly advance their digital capabilities to adapt to a new remote work environment.
The exponential growth of ESG investing
Sustainable investing saw enormous growth in 2020, cementing ESG integration as a megatrend in investment management. Global sustainable investment assets reached $35.3 trillion in 2020, a 15% increase from 2018, according to the Global Sustainable Investment Alliance. Climate change took center stage as investors focused on risks related to the low-carbon transition. Fund managers increasingly engaged with companies on ESG issues and advocated for climate action. Many asset managers joined high-profile groups like the Net Zero Asset Managers Initiative, committing to achieve net zero emissions across their portfolios by 2050. The pandemic also emphasized the ‘S’ for social in ESG, with issues like employee health and safety becoming top priorities.
The digital transformation imperative
The pandemic forced investment managers to rapidly digitize operations and accelerate cloud adoption. With employees working remotely, firms needed to implement capabilities like e-signature, virtual collaboration, and paperless workflows. Many managers set up trading desks at home and provided remote access to critical systems. Looking ahead, digital transformation will be crucial for managers to improve agility, resiliency and efficiency. Key focus areas include migrating infrastructure to the cloud, leveraging big data and AI for insights, developing user-friendly client portals, and integrating emerging technologies like blockchain.
The mainstreaming of robo-advisors
Robo-advisors like Betterment and Wealthfront gained significant traction among retail investors in 2020. Global assets under management for robo-advisors reached $1.4 trillion in 2020 and are expected to reach $2.5 trillion by 2024, per Mordor Intelligence. The COVID downturn highlighted the value of robo-advisors in providing 24/7 account access, automated rebalancing, and minimal human interaction. Incumbent players like Vanguard, Charles Schwab, and Fidelity entered the robo-advisor space through acquisitions or in-house development. The lines between robo-advisors and traditional wealth management will continue to blur going forward.
A paradigm shift in client engagement
Client engagement was upended in 2020, with face-to-face meetings no longer possible. Investment managers had to shift towards digital tools for interacting with clients. Many firms implemented or expanded their use of technologies like video conferencing, client portals, and mobile apps. Virtual events also became popular for investor education and advisor training. Looking ahead, managers will need to leverage digital channels and data analytics to provide a hyper-personalized experience. The future is a hybrid model blending digital capabilities with human advisors.
Outsourcing and the rise of sub-advisory deals
Many active managers looked to outsource investment operations like trading and middle office functions in order to reduce costs and improve efficiency. According to a Greenwich Associates survey, 46% of fund managers planned to increase outsourcing in 2021. There was also an increase in sub-advisory deals as managers looked to gain scale, enter new strategies or access specialized capabilities through partnering. Managers expanded their outsourcing relationships with third-party providers for areas like data management, compliance, and fund administration.
The investment management industry underwent an acceleration of key trends like sustainable investing, digital transformation, robo-advisors and outsourcing in 2020 as a result of the COVID pandemic. Investment managers will need to commit to ESG integration, leveraging emerging technologies, enhancing operational resilience and delivering hyper-personalized experiences in order to thrive in the years ahead.