IA Fintech Member Insights: Jacobi

Curtis Evans, Managing Director EMEA — Jacobi

Asset managers are in the midst of an unprecedented disruption. Long gone are the days of wide profit margins, high barriers to entry and regulators bein asleep at the wheel to the excessive costs being borne by end clients. Faced with shrinking fees for traditional services, asset managers are now looking elsewhere in search of revenues.

Today, the common phrase being bandied about by senior executives in the industry is  “commercialising research”. Asset managers sit on swathes of investment expertise, built up from decades of having established investment processes and in-house research teams. The challenge now is how rapidly they can unbundle their services and compete at different points in the supply chain.

Commercialising in-house expertise can mean different things to different asset managers. The value chain extends from stock and bond research to advising on asset allocation and security selection, to trade execution and reporting services, as well as to proprietary risk management and portfolio modelling tools. Even data captured on in-house systems can represent value that can be commercialised independently. Technology is – somewhat counter-intuitively – both the enabler and headwind to this trend. Traditionally, asset managers heavily in-sourced their technology needs. This has resulted in tools and systems that are internally focused, clunky and slow. The challenge will be whether asset managers can pivot these technologies to be fit for client consumption.

The trend of commercialising research also challenges entrenched taboos. Asset managers have typically been shy about sharing their research and investment tools for fear of undermining performance on high-fee funds. But with fees collapsing, there is a commercial imperative for that to change.

It also challenges relationships between existing asset managers, their clients and stakeholders. For instance, investment consultants have increasingly begun to offer the kind of services that were traditionally provided by asset managers. Now, asset managers are fighting back by offering different levels of advisory services. Traditionalists will see this as a risk, but it also creates opportunities for the most adaptable and agile organisations on all sides.

For the typical clients of asset managers, the trend of commercialising research is good news. Already reaping the benefits of falling fees on traditional fund management products, it creates new opportunities to run their businesses both smarter and leaner. For instance, by having access to a mix of unbundled services, the client no longer faces a binary choice between whether to in-source or out-source their CIO function. Instead, they can cherry-pick services to complement in-house investment teams and processes. This allows them to maintain control, keep costs low and reduce reliance on a single provider.

So who will win the race to diversify revenue sources and commercialise research? Many asset managers recognise that their internal intellectual property is a key advantage over prospective new entrants and fintech up-starts. BlackRock is already setting the bar high with its flagship Aladdin risk management software, but others are starting to follow by offering access to financial models, opening up their research platforms and putting a price tag on various forms of advisory and trade execution services.

To succeed, much will hinge on whether asset managers can overcome the technology and cultural barriers within their own organisations. But as traditional fund fees continue to fall, the need to commercialise research may be impossible to ignore.

To learn more about how Jacobi works with asset managers, owners and consultants to solve investment technology challenges, visit www.jacobistrategies.com