Author: KiteEdge – kiteedge.co.uk
2020 has been a landmark year on practically every level. And amidst the sea of volatility and upheaval that has occurred globally, asset owners have been seeking effective ways to understand and manage their way through the various crises. Increasingly, their focus is being trained on their asset managers’ knowledge management capabilities.
In a recent KiteEdge-hosted webinar, Dr. Dane Rook, Research Engineer at Stanford University’s Global Projects Center, highlighted how their recent research had revealed asset owners taking proactive steps to understand their exposures to risk in a thematic way as the pandemic took hold. This could be seen as thematic investing in a defensive way but applied to the whole portfolio not just niche strategies. This approach is not unusual – people wanting to study unfamiliar categories of risk, e.g. pandemics, often use causal scenario analysis. Asset owners wanted to frame risk discussions with their managers in a “What If..?” way.
What did surprise the Stanford researchers, however, was that a significant number of asset owners did not view the pandemic as a ‘Black Swan’ event that was impossible to handle effectively from a market perspective. Many believed that there was sufficient information available to have navigated the crisis far better than actually occurred, from the standpoint of both their own decision-making and the decisions made by their asset managers.
That assertion was based on the belief that much of the necessary information required to make effective decisions was already out there, for example, supply chains, health systems, economic conditions, disease transmission, etc. The perception was not that the information was unavailable but rather that it was too far away from being integrated into their knowledge systems. Stanford’s conclusion was that, effectively, these asset owners were saying that these failings, and those of their asset managers, are a failing of knowledge management systems. That failure is rooted in the fact that much of the necessary information for making decisions during the crisis has been too diffuse across the organisation, or else too latent in nature, and so generally inaccessible.
Commenting on their research, Dr. Rook said, “When it became clear Covid wasn’t going to be a short-term event, several asset owners sat down with their manager to have discussions about war planning, asking things like ‘What do you see about your competitive advantage?’, ‘What do you see as your core capabilities for weathering this storm?’. They wanted to assess various scenarios with relatively quick turnaround time in terms of asking their asset managers, ‘How would the portfolio you are managing respond to XYZ particular outcome?’ and for an asset manager to be able to, on-the-fly, decide what the impact on the portfolio is going to be if vaccine X is produced at Y time-point in the future. That’s not often an easy calculation to make – these sort of “What if?” examinations of future possibilities are going to become more common as we move further into terra incognita from a political standpoint, from an epidemiological standpoint, from a client standpoint. These are already in process and only likely to deepen in the future.”
There is no shortage of data available, but managers need the accessibility to plug into it quickly which allows them to make rapid, fully-informed decisions. Whilst the typical knowledge repository landscape found in the majority of firms is multiple, fragmented silos, the aim should be to migrate as quickly as possible to a single repository, make it queryable in a consistent manner and make it secure. The technology already exists for firms to be able to do this.
Clearly, a growing number of Asset Owners are now seeing knowledge management as increasingly having a crucial role in differentiating in how managers are positioned for crisis management and indeed risk management more generally. Managers need to rapidly review and upgrade their approaches and systems bringing KM to the fore and seeing it as of critical strategic importance.
James Flavin, CEO, KiteEdge