Chris Grandi is the CEO of the Abacus Group.

What do you see as the next major watershed for the industry?

Fund closures will increase in 2019.  With performance trending down as we come to the end of the year, several managers will determine their best option for themselves and their investors is to shut their fund down.

The fourth-quarter market headwinds affected a majority of investment managers, and many funds will carry a high-water mark into 2019. Those who determine that the opportunity for positive returns in 2019 are not as great as the high-water mark they need to overcome will close their funds.

What changes do you expect to see regarding cloud, cybersecurity, and back office in 2019?

Public Cloud services will become more prevalent.  With regard to IT services, we will see many more funds begin to utilize public cloud services for components of their business. The ease of use and utility-like business model will become attractive to fund managers.  Further, we will see more software companies deploy their products in the public cloud, to allow for easier distribution and implementation at their investment manager clients.

Due diligence on cybersecurity also will increase.  The conversations around cyber will move to demands around demonstrating how investment managers are keeping their business and investors secure.  Expect deeper dialogues around cyber-defense strategies, employee cyber-training, and incident response plans.

Finally, back office/operational reporting will increase and improve.  Although portfolio and position reporting will always be the priority, investors will now start asking for back-office reporting.  They will want to know and better understand how the back office is improving.  Reports on services and associated costs will improve to assist with these requests.

Which market structure changes do you expect to take place in the coming year?

It will see more capital flowing into smaller/emerging investment managers.  For many years, the alternative investment management space has had a saying that “bigger is better,” and correspondingly we have seen more capital move into the larger, multi-billion AUM funds.  We will see a reversal of this in 2019.  Capital redemptions are hitting the larger funds more so than the smaller/emerging funds

Will 2019 will be the ’Year of Institutional Crypto?”

Cryptocurrency will see more AUM growth.  We will start to see some crypto funds get very large in AUM.  We will also see several of these crypto funds shut down, as this segment will experience a “thinning of the herd” as it moves into maturity.

As the service providers in this space become more institutional and are able to provide legitimate and compliant services, more institutional money will move into this space.