1. Balancing scale and customization
Most asset managers have already created or spun-out dedicated teams to design and manage customized solutions for sophisticated clients. But only now are they realizing that this is exceptionally difficult to scale and govern. This extends not just to institutional portfolios and outsourced CIO services, but also to the “spaghetti” of model portfolios that must be designed and managed to support wholesale clients. As a result, many firms are looking at this in parallel with their technology strategy. Unless asset and wealth managers can integrate the initial portfolio design processes with both client engagement and portfolio management, then the economics of providing customized solutions may fall short.
2. Getting investment tools into the hands of sales teams
Many asset managers still rely on factsheets, presentations and past performance to position funds. But progressive firms are now creating tools to position products on the basis of their expected contribution to the objectives of a client. In practice, this means connecting their capital market projections, asset allocation frameworks, product suite and an ability to proxy the client’s portfolios - then getting that “know-how” into the hands of relationship managers. Instead of pushing product, the focus is identifying which funds are most complementary and beneficial for the client's portfolio. Finally, the conversation between asset managers and their clients is shifting.
3. Diversifying beyond “the fund” - in search of new product lines
Faced with falling fees on traditional products, asset managers are frantically working to package their research expertise into new product lines. Quantitative models, tactical asset allocation, solutions advisory, model portfolio services, risk management tools and manager and security research are all candidates for services to sell. And as asset owners trend towards in-sourced asset management, there is a growing market for unbundled services. Importantly, the technology barrier to provide this at scale is larger than many investment houses realize, so it’s still a trend in its infancy.
4. The search for an integrated cross-asset investment process
Investment firms typically have separate teams for asset allocation, manager research and security selection, divided further by asset classes. As each team uses unique portfolio risk systems, tools and processes, this adds complexity and inefficiency. As a result, asset managers are now creating uniform risk factor frameworks to better align top-down and bottom-up processes. And components that were previously left in the hands of security or manager selection, such as liquidity and ESG, are being re-defined through a common cross-asset lens. Given their complexity, it is the larger asset managers that face the biggest hurdle in ensuring that their investment process is integrated between the bottom-up, top-down and across asset classes.
5. The move beyond spreadsheets - The future is no-code
While encouraging greater use of programming languages such as Python among workers, few asset managers are focusing on the ecosystem for financial programmers to code within. Without that, governance risks may stay elevated or increase - especially as demand for customized solutions grows. Instead, progressive asset managers are ensuring their technology ecosystem allows them to separate financial engineering from software engineering. This allows them to innovate and build new investment tools rapidly, while ensuring appropriate governance. But bigger than programming languages is the “no-code” revolution about to hit the investing world. Not everyone needs to be a coder - when moving beyond spreadsheets, most important will be the platforms that enable regular investment staff to connect disparate investment tools, data and information.
