Author: Jacobi – jacobistrategies.com

‘Never let a good crisis go to waste’

Through the COVID pandemic, there has been no shortage of pundits quoting the unverified Churchill quote of ‘never let a good crisis go to waste’. Indeed, CTOs and CDOs at investment managers saw immediate benefits from forced disruption. This helped to accelerate digital adoption and focus minds on ‘burning platforms’ that needed addressing most.

Today, asset managers are slowly getting back into the office. Their work practices have been redefined by a more permanent shift to flex-working. But what remains of transformation and the progress towards better digital adoption? While many initiatives address internal scale challenges, such as improving back-to-front office integration, most important is how digital adoption will improve the outcomes for the clients of investment managers.

With that in mind, below we identify the three transformation trends that we believe are most important.

Getting investment IP into the client’s hands

Investment groups are increasingly realising that differentiation on the basis of product alone is not enough. Where differentiation can be exploited however, is in the sharing of investment intelligence. Too often regarded as a ‘client reporting’ challenge, progressive managers are shifting their approach towards deeper partnerships with clients. This includes the exchange of investment intelligence, analytics and data – information that was previously kept under strict lock and key by the investment team. Not only does this help to widen the value-add for clients, it allows asset managers to better articulate the uniqueness and quality of their investment process. Thankfully, the days of articulating a competitive edge through 2-dimensional slide decks are coming to an end.

Instilling a portfolio construction mindset in front-line client conversations

Too often overlooked is what may be a great fund in one investor’s portfolio may be a weakness in another’s. Metrics such as Sharpe and information ratios – widely used to promote the benefits of a fund and shape ‘best buy’ lists – make little sense when viewed in isolation.

What matters most is the contribution to a client’s total portfolio of such measures. And not just numbers in the rear-view, but also projected contributions. In recognition of this, a shift is underway to arm sales and relationship executives with better tools and know-how to position their funds and capabilities. By having a client’s total investment portfolio in mind, sales teams are beginning to act like portfolio construction practitioners. Already happening at the institutional end of the industry, this trend is now filtering through to wholesale.

Widening the investment management service

New offerings of investment technology, execution, model portfolios, passive and factor ETFs, OCIO services and digital wealth products – these are all examples of asset managers moving beyond traditional products and widening their service offering.

With a small handful of managers leading the trend, vertical consolidation across the industry is still in its infancy. Yet it’s increasingly important for mid-to-mega sized asset managers that have a ‘shop shelf’ stacked full of traditional funds. Otherwise, they risk being left behind. Success requires laser focus and prioritisation. For some, it may simply mean providing services with lower margins, or even loss leaders, to strengthen the tie-up with existing clients that underpin higher margin funds. For others, it means stretching well beyond their comfort zone by launching new product initiatives that put them in competition with established incumbents and the wave of capital entering fintech.  Fortune will favour those that choose not to compete on all fronts, but rather are meticulous in picking their battles.

For many investment firms faced with internal scale challenges, these three trends remain stretch goals at best. But they shouldn’t be ignored. After all, they strike at the core of how an investment manager will position itself to its clients and set itself apart from the competition over the next decade.