Disruptive technology shakes up asset management industry – key takeaways from this year’s ALFI conference

Yesterday brought us the 14th ALFI (association of the Luxembourg fund industry) conference in London, which outlined some of the key trends the European asset management industry has seen over the year, and what the future looks like for fund managers. It also provided an opportunity to reinforce the ties between Luxembourg and London, touching on the implications of Brexit for the sector, and focusing on the opportunities that remain for a stronger relationship between the two regions in European financial services.

As the Luxembourg minister for finance Pierre Gramegna kicked off the day’s proceedings, he touched on four themes at the forefront of the industry: European financial growth; Brexit; the digital economy, and green finance.

Promising figures for Europe were reported, citing that last year was the first time since 2008 that every European economy saw growth, whilst the year’s average unemployment rates also fell from 13% to 9%. Luxembourg has experienced similar prosperity, with 2017 marking its first year to hit the $4tn AUM mark.

The minister had a pragmatic yet optimistic outlook on Brexit, focusing on retaining close ties and minimising the impact on asset managers: “We respect the vote that took place in 2016, and now we must find the smartest solution” he says.

Staying on the topic of Brexit, the minister backed the concept of equivalence, claiming that it would be a viable and sensible option for all parties.

Also discussed during the conference was a need to adapt to diversification and become more inclusive an industry. This was not only referring to internal talent, where the gender pay gap is expectedly large, but also in the changing demographics of investors.

It has become more important than ever to consider consumer behaviour and the diversification of investments, particularly due to the influx of the millennial generation taking an interest in the wealth management industry. It was suggested that this generation will present less loyalty to fund managers than their older counterparts, as they possess access to greater sources of information through living in a digital age.

This shift will require fund managers to focus more heavily on customer services and look to target behaviour trends in investor decisions. However it was noted that due to the instant access people now have to investments through smartphones and other devices, the temptation to make short-term decisions is greater, which can skew the findings produced in behavioural studies.

The overarching theme throughout the day was definitely technology. From dealing with the use of machine learning in ETFs and AI-driven portfolio management, to the controversial subject of ICOs and the regulation of tokens, fund managers will undoubtedly experience a shift further towards the digital age over the next three to five years, with innovative products and services already dominating the market.

Specifically referred to was Ant Financial’s Yu’e Bao fund, currently the largest money market fund in the world, and AI powered ETF EquBot, whose CEO Chida Khatua attended as a speaker. Powered by IBM Watson, Khatua’s fund reviews millions of articles and news sources, capitalising on the sheer amount of data to determine new investment opportunities.

Whilst AI and machine learning present clear-cut benefits to funds, blockchain and distributed ledger technology remain in the exploratory phase for most, with several questions surrounding its place in the current regulatory environment.

It was proposed that from an advocacy perspective, tokenisation and crypto assets would essentially fit straight into current regulatory framework, with the exception of a few issues; however, in order for these innovations to enter the mainstream market, it requires large incumbents to lead the charge and make the necessary administrative and custodian changes before they can be viewed as legitimate financial products in the market.

Overall, the conference brought a sense of optimism to the asset management industry, presenting a wealth of opportunity for further growth, and access to new markets through fintech. Its speculated asset managers may witness a surge in B2C business, as well as a journey into the mainstream utilisation of blockchain and robotics, whilst we continue to affect further transparency and open architecture through changing regulations.

Although this implies a lot of disruption to come, it should be an eventful and fruitful period for many in the industry!

For more information about our services in asset management, please contact Consultant Max Alfano at malfano@fidessearch.com

 

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