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The industry is looking at how to grow, and make their businesses sustainable, over the next 10 to 20 years. In this new debate the key question is how megatrends such as demographics, technology and the environment will impact business in the future.
Following the global financial crisis many regulators are introducing an unprecedented amount of new and far reaching regulation. The new rules create a number of complexities for investment managers, ranging from changes to data and systems to distribution, communications and reporting.
In response to regulatory pressures and to refocus on their core business, many banking and insurance groups are divesting of their investment management arms. This has generated an appetite for acquisitions on the part of opportunistic investment managers seeking further expansion both locally and/ or internationally.
Many CEOs have been asking if they have an optimal business and operating models to achieve their strategic and financial goals. Some executive teams have taken a step back to re-examine the financial goals defined for the business, the strategy employed to achieve them and the models in place to deliver that strategy.
Most investment managers know that risk can create business opportunities and deliver real. We are increasingly seeing senior management become highly engaged in understanding and challenging management information – particularly investment risk reporting – in order to make more informed business and strategic decisions.
Investors have also become more inquisitive about corporate governance and risk management procedures conducting extensive due diligence over managers’ operations before they commit to any investments. This has become particularly important in the hedge fund space where, managers are going through an ‘institutionalization’ transformation process.
With the advance of technology and a growing universe of data, big data is being transformed into tangible value for astute investment managers. This includes gathering, analyzing and interpreting data to make better business decisions across all areas of the business. Among the great advantages of big data is the ability to create a market segment of one. Extreme tailoring of product sets and product strategy based on individual customer behavior gleaned from social media and mobile footprint is but one example. Big data is also useful to get the most out of one’s sales force by tailoring incentives, optimizing results and identifying new opportunities. Applied correctly, the analysis of big data can assist with a range of predictive capabilities including predicting tax and regulatory impact when entering new markets. At the same time cyber security remains a challenge placing data privacy and protection high on the agenda.
With all of the new requirements and reporting needs (business/management, regulator, and customer reporting demands), data architecture, ‘good’ or ‘golden”’ data and strong data governance are critical and most of the industry still falls short. This is relevant to all market segments - from large private equity houses to the independent asset managers and the investment management arms of the financial services conglomerates.
Investing in the Future Bulletin is a monthly look at the megatrends reshaping the investment management industry and how the industry is responding.