What does it mean when an asset owner – GIC in this case – outshines all the fund managers in a room when it comes to technological capabilities?
The traditional, actively managed-funds industry is in trouble if its response to digital disruption is to allow itself to be eclipsed by the institutions it is meant to serve.
Excuses such as “blockchain’s impact is 10 years away” or “Asia’s too fragmented to make investments worthwhile” aren’t going to cut it when a major client like GIC is training its risk and performance teams to learn programming languages today.
And, by the way, disruptive tech – blockchain, artificial intelligence, digital assets, the lot – is going to impact your business a lot sooner than in 10 years. It may not happen as quickly as fintech gurus claim, but if your organization waits until the 2020s to begin developing a strategy for these things, you’re sunk.
Not because DigFin so proclaims. Because no one under the age of 30 will want to work for you.
GIC gets skilled
They’ll want to work for people like Dominic Lim Kwang Wei, head of risk management at Government of Singapore Investment Corporation.
Speaking at TSAM Hong Kong, Lim says his 70-plus team is responsible for supporting investment and operations teams in assessing risks, and measuring and attributing performance.
His people are encouraged to learn coding languages such as R and Python, so that they can use robotic programming applications (RPA). “It’s self-help so we don’t always need to rely on the I.T. department,” Lim said.
His folks are developing visualization tools so they can provide better dashboards when they make reports. And GIC is exploring higher-level tech to improve the investment process.
Learning these basic skills helps GIC automate and simplify work, and it gives the people in Lim’s team new skills that they can use to advance their careers.
The vultures of culture
How many traditional, active buy-side shops are creating the same opportunities for people who aren’t in I.T.? Admittedly, there aren’t many asset owners with GIC’s sophistication. But shouldn’t service providers be ahead of their clients? Based on comments from many COOs and service providers at the TSAM event, the answer is ‘not many’.
There’s going to be a point when mandates become about how well you use data to understand your institutional customers; how you use computers to add alpha-generating insights to portfolios; what peer-to-peer networks you use to pitch institutional products; how well you use A.I. to personalize offerings to your wholesale channels… Didn’t even use the word ‘blockchain’! Didn’t threaten you with Alibaba or Google scare stories!
Ten years away? If you think so, then by all means, carry on.
The barrier to change is not that people who work at fund-management companies are clueless. They are smart and aware. But they are working in organizations that are struggling to connect the reality of today’s P&L with tomorrow’s dream of silicon awesomeness.
This is what disruption feels like: knowing the ship is sinking, seeing more holes to plug than you’ve got fingers, but still coasting on your reputation, relationships, and the high barriers that your regulated license should confer.
Go big or change it up
Scale is a perfectly reasonable strategic response to this problem. But by definition only a few players can win that game.
The big have to become humungous – $1 trillion AUM – to survive the inexorable demise of fees on their core products, the costs of switching from (relatively) straightforward institutional business to retail, and a mountain of new reporting and other regulatory requirements.
Very niche specialists always have a future. Everybody else has a choice. Get bought, which means a healthy synergistic cleansing of your teams (enjoy!) – or innovate.
Being forced to innovate sucks because it’s confusing and hard to get managerial consensus. Everybody’s scared of losing their job. Senior executives reckon they can hang on for the next seven or eight years until they cash out, knowing they can maintain bonuses by squeezing the rest of the business on costs, and not caring that the enterprise they’ll leave behind will be a shell.
The majority of decision-makers are skeptical about fintech anyway. Senior portfolio managers built their reputation on last decade’s processes. And didn’t Jamie Dimon just call bitcoin a fraud?
The positive news about innovation is that it is good for your customer. Firms feeling stuck in the mire can start to imagine their future if they think about what value they can offer – which, yeah, okay, is easier said than done. It’s institutionally very difficult. But it’s also going to become a life-or-death question for a growing number of asset managers.
Tech can’t rescue a bad business proposition but it can leverage a good one – and without mass layoffs. The trick is to scale while keeping headcount flat. It requires people to adapt, though, and not everyone can keep up. Some old timers will flat-out refuse.
Might a mid-sized, active/traditional fund business will really go for it, and initiate a drastic, radical overhaul in order to ensure the company’s long-term future?
That can only happen if the senior management finds solidarity on this issue. Shareholders are probably useless. Management needs to be young enough to avoid the cynical, do-nothing-but-cut-costs response, or is willing to give the younger employees more say. And new directions should be explored in partnership with your smartest clients, not the dull ones.
Even if this isn’t realistic for you, the GIC’s example of encouraging entire teams to upgrade their personal skills seems like a great model to copy. If a top-down approach is logjammed, then at least empower the bottom levels; help your people prepare for what’s coming and give the younger ones a sense that your company does more than give lip service to innovation.
Otherwise, you will spend the next several years waging the usual budget battles, fighting I.T. fires, finding excuses for relinquishing mandates from the likes of GIC, and staying in decreasingly grand hotels. Your final year before retirement will be spent roaming empty halls looking for a dynamic successor, but the talent will have gone elsewhere.