Fund Forum – as with many events scheduled to take place in 2020 – was forced to adopt a virtual format this year. Calastone participated in a number of sessions during the week-long conference and shares its unique insights into the rapid industry transformation that has happened over the last six months.
An overnight digital transformation
Covid-19 compelled asset managers to transform their business models overnight. Now more than six months into this crisis, the industry has navigated the initial operational resiliency test. The inability to physically meet people forced investment managers – as with many other service-based firms – to embrace digital communication channels to maintain a regular dialogue with clients
However, we heard at Fund Forum that many in the industry feel video calls are not necessarily a long-term solution. Edward Glyn, our Head of Global Markets, moderated a panel of some of the industry’s top CEOs, where there was some scepticism. Edward conceded that while it was relatively straightforward to win allocations from pre-existing investors through video-conferencing facilities, he questioned whether this success could be replicated for new business in the long term.
Frederic Jambon, CEO at BNP Paribas Asset Management, said virtual pitches to prospects had yielded mandates, but added organisations would need to find the right balance between video calls and physical meetings post-pandemic.
Although offices will not become a thing of the past in the world of asset management just yet, we can expect a permanent, radically different way of working to be in place from 2021. What that will look like exactly is still an unknown.
Automation integral to success
Beyond home working, the pandemic, panellists added, has prompted asset managers to increasingly eschew analogue, paper-based processes in favour of real-time electronic reporting and automation.
However, Jon Willis, Global Head of Distribution Support and Transfer Agency Operations at HSBC, said on another panel that inefficiencies when processing client KYC (know-your-customer) and AML (anti-money laundering) checks still remain. Experts said deficiencies around KYC/AML could be resolved by rolling out new technology enabled solutions (i.e. distributed ledger technology) or developing an industry utility.
Henning Swabey, our Head of Europe, moderated a panel on digitalising distribution at Fund Forum, and highlighted that investment firms urgently need to look towards automation given the unique challenges posed by remote working.
The funds industry has made huge digital advancements over the past six months, and speakers at Fund Forum were keen to stress that people should not revert back to their old ways as and when the pandemic ends. We have proven that digital change can be implemented quickly in this industry. The experiences of the funds industry during Covid-19 need to be built on if it is to ensure its long-term survival.
Amazonification of asset management
The good news is that many of the panellists said that they expect investment in technology to continue at its current pace, with tools such as APIs (application programming interfaces), cloud, data analytics and artificial intelligence (AI) projected to become far more ubiquitous across many different facets of the business.
Mike Tumilty, COO at Standard Life Aberdeen, said AI and natural language processing could be leveraged by investment research teams to finesse their analysis, thereby freeing up precious resources and potentially augmenting return generation.
Younger peoples’ lives are increasingly interwoven with online platforms and apps, whether it is making a payment or ordering a taxi. At the heart of this is simplicity and personalisation. Just as open banking is transforming consumer experiences, panellists said distributors need to embrace new technologies to make the fund buying process more enjoyable, quicker and easily repeatable.
Niall Hornett, Head of UK Funds Product Management at Citi, said this was not a case of simply layering new technology onto old systems, but creating an entirely new digital client experience from scratch. This would enable investors to purchase funds through smart devices, for example.
Simplifying and digitalising the investment process could also be facilitated through tokenisation, a concept we have covered extensively during 2020.
Cyber fault-lines exposed by COVID-19
As the industry digitalises, new risks will unfortunately manifest. The proliferation of remote working and digitalisation has reinforced the importance of effective cyber-hygiene, panellists said. As more activities in the funds ecosystem move online, it is vital the industry keeps on top of cyber-security with experts warning it is an area which regulators are monitoring closely.
The volume of cyber-attacks during COVID-19 has been staggering with the FBI’s Cyber Division fielding more than 4,000 complaints a day, a 400% increase from pre-pandemic levels. Asset managers recognise that although the industry has recorded fewer incidents of cyber-fraud – than say retail banking – investors will vote with their feet if serious security breaches occur.
The asset management response to ESG: Tangible action or meaningless marketing?
We saw at Fund Forum that sustainable investing is now being propelled by new EU regulations. Beginning in March 2021, EU investment firms regulated under MiFID, UCITS and AIFMD will need to publish detailed information about how they integrate sustainability risks into their investment decision making processes under the SFDR (Sustainable Finance Disclosure Regulation).
Asset managers are taking note with BlackRock and State Street Global Advisors, for example, already pledging to vote against senior management and board directors at companies who are seen to be stonewalling on sustainability. In our recent Fund Flow Index, we noted there had been record inflows into ESG funds, indicating a seismic shift in the investor market.
While numerous asset managers have made impressive inroads with ESG, panellists at Fund Forum said that greenwashing continued to be a problem. In fact, it is a major reason behind the SFDR regime. Nonetheless, ESG investing is riddled with conflicts as we saw in our recent webinar.
Some asset managers argue it is not possible to facilitate sustainability unless they actively engage with pollutant companies. Simply holding pure ESG assets in a portfolio and excluding all carbon emitters would not bring about positive change.
Asset managers in 2021
This year, we experienced a truly unique and meaningful Fund Forum. Covid-19 has forced a number of changes on the industry, making it almost unrecognisable to what it was like at Fund Forum in Copenhagen in 2019.
Covid-19 has prompted countless sectors to re-invent their business models and the funds industry is no exception. The asset managers who digitalise their operational processes and incorporate ESG into their investment portfolios will be the net beneficiaries to emerge. By swimming against the prevailing tide on digitalisation and sustainability, asset managers will lose the support of their investors thereby putting themselves at serious risk of not surviving this crisis.