Asset Management Is “Digital Technology Laggard”
The asset and wealth management industry “is a digital technology laggard” and faces competition from technology giants with data analytics and distribution muscle according to PwC.
In a report, “Asset & Wealth Management Revolution: Embracing Exponential Change”, PwC said the industry has fundamentally remained the same since the last decade of the 20th century. However over the next ten years there will be major changes and technology experts and data scientists will become vital for success across the business
“Technology advances will drive quantum change across the value chain – including new client acquisition, customisation of investment advice, research and portfolio management, middle and back office processes, distribution and client engagement,” added PwC. “How well firms embrace technology will help to determine which prosper in the years ahead.”
For example, alternative intelligence-powered robotic processes will monitor and analyse every public company, as well as other financial and non-financial data. They can also process supply chain analysis and the other new forms of data that asset managers are able to source.
“Already, some alternatives managers are successfully leveraging quantitative strategies and regard themselves first and foremost as technology companies,” added PwC. “We expect this trend to accelerate.”
For example, last week Credit Suisse announced the launch of the Credit Suisse RavenPack Artificial Intelligence Sentiment Index. The Swiss bank has created quantitative investment strategies from news analyses by RavenPack’s artificial intelligence algorithms. The AIS Index tracks the notional performance of an algorithmic US large-cap sector-rotation strategy, using big data analytics to make sector allocation decisions in a tradable and systematic way. It is the bank’s first quantitative investment strategy resulting from its collaboration with RavenPack.
Armando Gonzalez, president and chief executive of RavenPack, said in a statement: “Big data and artificial intelligence present a huge opportunity for the financial services industry, and this milestone collaboration with Credit Suisse shows the increased value our news analytics can provide to equity investors.”
Technology and data analytics will also be used to construct multi-asset outcome-based solutions using low-cost building blocks such as exchange-traded funds or index trackers.
The report continued that big technology firms will follow the lead of Chinese firms who have used digital distribution to quickly attract billions of dollars into money market funds. For example, Facebook received approval as an electronic money institution from the Central Bank of Ireland last October which PwC said showed its potential for distributing retail investment funds. The license authorises Facebook Payments International to take donations for charities in the European Economic Area and to make peer-to-peer payments in the region.
PwC also forecast that by 2025 assets under management will almost double to $145.4 trillion, from $84.9 trillion last year .
“This growth will likely be uneven in consistency and timing: slowest in percentage terms in developed markets and fastest in developing markets,” added the report.
However, as flows shift to outcome-based solutions and passive strategies, there will declines in the overall revenue pool.
PwC said: “In Europe, for example, MiFID II not only bans asset managers from paying opaque retrocession commissions to wealth managers, but also requires them to disclose research costs, which will lead to further pressure on profitability.”
By 2025, PwC expects active management to represent just 60% of global assets under management, down from 71% last year. Passive market share will rise from 17% to 25% and assets will more than double from $14.2 trillion to $36.6 trillion.
“Transparent, flexible and cheap, passive ETFs will remain popular, although ETFs will also increasingly have active strategies,” said PwC. “ETF growth is quickening, led by US retail investors, especially younger, high-net-worth investors.”
Almost two-thirds of market participants are optimistic about the future.
Start-up will bring artificial intelligence into the mainstream via an app-store format.
Platforms need to interoperate across market infrastructures.
Vendor plans to enhance its event catalogs via the AI discipline.
The AI system transforms large quantities of structured and unstructured data.