The complexity of doing business across Asia’s diverse markets, and the region’s embedded pattern of wholesale distribution, means innovating its manually intensive mutual-funds industry is going to be a slow process, says Steven Billiet, CEO for Singapore at J.P. Morgan Asset Management.
Billiet sits on an internal, Asia-wide fintech taskforce that was set up at the beginning of the year to help communicate technology initiatives across the entire J.P. Morgan Chase organization. There he represents the firm’s investment-management business. Phil de Josselin, chief administrative officer for Asia Pacific, chairs the taskforce; Hong Kong-based Michael Falcon is the CEO for asset management in Asia Pacific.
The investments side is driving initiatives around data analysis, but Billiet is cautious about the prospects for technology to fundamentally change the mutual-funds industry in Asia, at least in the short term.
From J.P. Morgan’s perspective, he reckons new ideas are more likely to be tested in the U.S., where there is a single capital market, at scale. North America and Europe are also where the firm tends to find the most advanced third-party fintech companies in the investments space, he added.
Big, diverse, and entrenched interests
Asia, on the other hand, is fragmented. Every market has a different regulatory setup, different market infrastructure, and different profiles of investors. In addition to the same global players manufacturing and distributing funds, the region also has many large domestic players. Developing solutions in Asia first could end up meaning a different platform for each market, which the firm would rather avoid.
“The Asian funds ecosystem is massive, including all of the local asset managers and distributors,” Billiet told DigFin. “There’s regionally a huge list of market participants, but you can’t get them around a table together to discuss how we could start the industry again from scratch.”
He acknowledges that some firms and governments are early adopters, but says making significant changes to how the industry works will take years.
That is partly because the main method of selling mutual funds to retail investors, via banks rather than directly or through independent advisors, has embedded a complex web of relationships and interests that can impede across-the-board automation.
“Really, nothing has changed structurally since the mutual funds business began in the 1980s”, he said, when fund management companies first used local banks to distribute products – itself an innovative business model that was suited to the region at the time, and has become entrenched.
Data for alpha and admin
J.P. Morgan Chase is engaged in major tech projects around wealth management, but that is mostly in the U.S. There are pilot tests for robotics, machine learning, shared ledgers and big data, but the emphasis bank-wide is on digital payments and securities trading, not investment management.
But the firm is looking at how data can improve the investment side of the business. Processing and analyzing data, so that the I.T. department can help portfolio managers find patterns or trends, is potentially a source of alpha. To some extent it’s also necessary simply to manage the sheer volume of data flows, and the diversity of data sources.
“This isn’t new,” Billiet said. “Analyzing data is what a portfolio manager has always done. Today they look at a Reuters or Bloomberg screen, but with so much more data out there now, the PMs could use some help accessing that.”
The other area where the investment business is looking at tech solutions is for processing and fund administration. For example, it is working with robots to automate the tedious, cut-and-paste work that goes into formatting reports for clients.
Such improvements can shave one or two hours off a person’s time spent on administrative work. “It’s step by step, rather than a fundamental restructuring of funds processing and admin,” Billiet said.
He would like to see such initiatives coalesce into something weighty. Operations to support fund sales in Asia, particularly when it comes to transfer agency (the registrar function), are still manual. Many firms on both the distributor and manufacturer side still rely on confirmation of orders by fax: although these may be digital scans, they still involve sending and storing images, rather than files that can be reliably automated.
J.P. Morgan is also sponsoring University of Hong Kong to develop technology to help it search internal documents. The firm wants to be able to extract relevant information from its legal agreements and texts with clients, because these terms vary. Reporting, fees, investment restrictions and the firm’s obligations differ among clients, and keeping track of everything is now a manual and cumbersome process.
The longer view
Billiet says that if enough of these functions were automated, fund sales could one day follow securities transactions onto a blockchain or other automated trail that cuts out intermediaries and eliminate errors. “That should happen in the mutual funds space over the long run,” Billiet said.
This would have ramifications beyond merely cutting costs in the back office: “It would open many new avenues because it would mean more continuous and frequent transactions in funds. Traditional mutual funds could become a permanently trading process, rather than having their unit price fixed at the close of each day.”
But the technology isn’t there yet, Billiet says. It hasn’t been tried and tested by the industry, and in Asia, at least, there isn’t an industry-led project to develop the necessary infrastructure – going back to his point about fragmentation being a barrier to innovation at the industry level.