In their final opinion piece for 2020, our Asset Management experts take a look ahead and outline what key themes will demand focus from industry participants in the new year, and how a holistic approach will be the true measure of success.
Putting a lid on 2020
As we are wrapping up 2020, we are reflecting on the many ways in which this year has been an exceptional one – both professionally and personally – for our clients, our firm, and the sector as a whole. Looking forward to 2021, what do we think will be the main challenges the sector will focus on next year – and how might these be turned into opportunities?
A holistic approach to complex change
Industry challenges continue to revolve around big-ticket items, from continuing cost and fee pressures to ever-increasing data requirements and operating model complexity, a growing focus on non-financial success measures and enabling customer access to new and alternative asset classes. The current ‘hybrid working environment’ further highlights the need for robust risk management.
The volume and complexity of change to implement across the investment value chain is as high as ever. We believe that the key to success will be how initiatives in each area are co-ordinated and optimised to achieve a better result than the sum of the parts. For example, re-engineering the operating model to drive out efficiency should also address resilience challenges and ensure ESG considerations are fully embedded. Employing such a holistic approach to this range of challenges will be a true measure of success and enable firms to unlock competitive advantage.
Asset Management themes 2021
With all this in mind, we have identified five major industry themes that we believe will receive the most focus in 2021.
When surveyed this year, 74% of advisors said they explicitly consider ESG in their selection process, compared to just 43% last year. Asset managers need to consider how ESG is incorporated into their investment process, how the relevant data is sourced and how it is reported to clients. Compliance with SFDR will be a key element in achieving this, requiring written policies on the integration of sustainability risks into the investment decision-making process, preparing additional content for prospectuses and websites, changing client reporting and requiring changes to front office systems.
- Operational resilience
There is an increasing regulatory requirement to ensure key business services are resilient, with a focus on ensuring harm to consumers is minimised, but also considering potential harm to the firm and the market. Equally important is to make informed decisions when setting the operational risk thresholds of key business services. This will require an assessment of resilience of both in-house and outsourced functions (including oversight of them) – reviewing the end-to-end operating model and identifying those services which should be considered as key, for further focus. We believe a pragmatic approach is critical to success – ensuring an appropriate level of focus on those areas where value can be added.
- Data and technology
The importance of data and technology is clearly not confined to the asset management industry – but there is perhaps more need for change in the asset management industry, due to the complex and data-hungry nature of the industry, combined with a reliance on often outdated legacy infrastructure. We are seeing firms address this in a number of ways – including reviewing their strategic technology architecture, implementing a data strategy or considering front-to-back solutions – including outsourcing elements of the data process and shared access to systems.
- Cyber security and fraud
The need for firms to mitigate the risks caused by cyber security and financial crime has been growing over time – and has been exacerbated in the current environment, with most business conducted online, and firms (and their clients) operating remotely. This is a complex and constantly evolving area, which requires firms to be on the front foot – a failure to properly address this can easily result in a real financial impact to the firm and its clients, notwithstanding the reputational impact to the firm. Responses should be multi-faceted, incorporating technology, policies, conduct and culture – and often leveraging a technology partnership.
- Operating model efficiency
In order to respond to cost pressure, and align with a firm’s strategic direction, we expect to see significant activity intended to drive operating model efficiency, including:
- Consideration of outsourcing boundaries and sourcing strategy
- Technology rationalisation
- Target operating model globalisation and harmonisation
- Ensuring scalability of private markets / multi-asset operating models
- Reviewing data costs and data strategy
- Optimising the change function.
Watch this space
We invite you to keep an eye out as we explore each of these in upcoming opinion pieces. We would like to take the opportunity to thank you again for all your support and readership this year, and look forward to reconnecting in 2021.