Calastone held its Connect Forum in Hong Kong on June 27. Specialists from across the funds industry spent the morning talking about distribution and some of the changes it is likely to go through, while Calastone shares its views on the importance of data.
Asset managers have seen their profit margins squeezed as their cost of delivering services has climbed, pushing them to rethink their business models. Several converging trends have given rise to this situation. On the one hand, firms must meet increasing onerous regulatory requirements as the US revisits Dodd Frank and the EU moves towards the implementation of MIFID II in January 2018.
On the other hand, client servicing is ever more challenging as high-net-worth individuals demand personalised investment solutions and increasingly sophisticated investment technology. At the same time, there is a growing number of tech-savvy young investors with fewer investable assets and a desire to invest in ethical solutions.
Brave new world: It’s all about big data
It can be costly for asset managers to simultaneously meet evolving regulatory requirements while also working to influence and capture this new generation of investors. As traditional distribution channels are increasingly ineffective in the emerging market environment, it is crucial for firms to gain insight into the motivations and behaviours of their new client base if they are to meet their needs.
In our view, real-time market data – often referred to as “big data” due to the sheer volume generated – is the most effective way of gaining these insights. As W. Edwards Deming, an American engineer, statistician, professor, author, lecturer and management consultant once said, “Without data you’re just another person with an opinion.”
The asset management industry is arguably behind the curve in terms of leveraging real-time market data. A recent study commissioned by Calastone, found that 51% of interviewees believe asset managers are bad at making use of the data generated by their distribution networks and only 21% consider asset managers good at adopting and exploiting the potential of new technologies.
Who is leveraging data to its fullest extent?
A good way for asset managers to address this perceived shortcoming would be to look at industries that are currently using client and market data effectively. Perhaps no better examples exist than technology giants such as Amazon, Google and Facebook, many of which are said to be contemplating entering the financial services industry themselves.
Whilst many of these firms did not start out with business plans centred on big data, many of them boast astronomic valuations due to their ability to collect and analyse data and deploy business strategies based on insights to consumer motivations and behaviour.
Alibaba is a good example of how a leading e-commerce, technologically advanced, player has used its expertise with big data to tap into the financial services industry. The company has leveraged its data trove on customer behaviour to launch and distribute Yu’e Bao.
In addition to using Alipay, Alibaba’s widely used online payment platform, to pay for everything from taxi rides to online purchases, customers can park their idle cash in Yu’e Bao to generate returns. Their ability to leverage and analyse a tremendous amount of consumer financial and behavioural data allows it to make informed business decisions. In just four years Yu’e Boa emerged as the world’s largest money market fund with more than 325 million clients and assets under management of US$165 billion.
Asset managers have yet to harness the potential of big data
Calastone considers data to almost be an asset class itself, as it has the potential to deliver dividends in the form of consumer insights that can drive real business returns. In fact, our global fund transaction network essentially represents a case study in how real-time fund flow data can generate actionable market insights.
To demonstrate this, we looked at Calastone transactional data to examine the impact to fund flows in the weeks following the Brexit referendum in June 2016.
In the month immediately following the vote, UK investors consistently purchased domestic equity funds, indicating an aggressive risk-on investment attitude. However, in Asia, investors showed very different behaviour, adopting a risk-off stance to escape market uncertainty and attempt to insulate their portfolios from volatility. Investors in Hong Kong, Taiwan and Singapore shifted assets to fixed income funds. In Hong Kong alone this helped bond fund inflows reach US$24 billion in 2016 alongside equity fund inflows of US$12 billion.
Digging deeper into this data, although Hong Kong, Taiwan and Singapore investors all showed a preference for fixed income funds over the period following the Brexit referendum, the fund flow data reveals that there was no cross-over among the top five funds purchased in each of these markets.
This is exactly the kind of data that can give asset managers insight to investor behaviour. As investors continue to demand increasingly for customised products, there is a huge opportunity for asset managers to tailor their fund offerings and distribution strategies based on an aggregate profile of the investors and what they are buying.
We believe that the winners in tomorrow’s asset management industry will be those who are most proficient in collecting, analysing and responding to this type of information, adjusting their product development and distribution strategies to address investors’ real-time needs and preferences. In today’s increasingly competitive environment, unique value propositions that are gleaned from data will give the asset managers a competitive edge over their peers and support their business goals.
(First published in The Asset 04/08/17 – https://www.theasset.com/asset-management/33272/targetted-delivery-leveraging-the-data-opportunity-in-fund-distribution)