Trends in Investment Management
Aniruddha Chatterjee Head – Buy-Side business Thomson Reuters South Asia
Data and technology will enable smarter, responsible investment decisions The Chinese have a phrase: “May you live in interesting times”; this phrase certainly holds true for the investment management industry that, over the past few years, has indeed been having an interesting time. The industry has been wading through challenges, both regulatory and economic, while leveraging opportunities presented by digitisation as they seek alpha returns for their investors.
While the dynamic nature of the industry has always been a given, the throes of change led by data and technology along with progressive regulations have unravelled opportunities like never before. The advances in technology and access to big data have enabled access to unique and powerful customer insights and investment strategies creating possibilities that hitherto had not crossed the minds of fundamental investors.
The future lies in trusted data and smart technology
The advent of new age technologies such as automation, robo advisory, artificial intelligence and advanced analytics have opened the doors to new avenues for the industry to thrive. As the AUMs continues to grow and fund management companies compete for alpha, technology will play a key role in driving performance and efficiency. The industry is already experimenting with robo-advisory powered by trusted data, which is helping them automate the entire process of investment management – from account opening to asset allocations, to understanding the goals, objectives, and risk profile of investors.
The access to trusted data and analytics can also help companies uncover trends and investment flows, presenting unique investment insights and opportunities, improved portfolio and risk management and higher trading. This can also help companies monitor the impact of decisions and optimise the design of products and services. Harnessing emerging technologies such as artificial intelligence and machine learning can provide a significant competitive advantage to firms, giving them the ability to make better, quicker decisions while managing risks.
Progressive regulations along with data and technology are set to open up the market
With the Indian asset management industry scaling new heights, the regulator is also opening up new avenues for the investors. Last year, SEBI allowed commodity investing for Category-III hedge funds and it is believed that soon it might consider opening it up for retail investors through mutual funds as well. While the new asset class provides investors the option of hedging their investment portfolio in relation to equity and debt, smart and efficient investment decisions will be enabled by data and technology. The emergent technologies, bundled with the popularity of commodity indices, will make it simpler for investors to participate in commodity markets and would allow market participants to trade and invest on a short and long-term basis. The indices will also help investors effectively benchmark commodities across categories in real-time to make efficient investment decisions when index-based products are available in Indian commodity markets, with tools aiding them in the process.
Rise of ESG-led investing
As investors mature, they will look beyond returns, to the impact of their investment on the environment and society as a whole. This is especially true of the millennials who seem cognisant of their ecological footprint and the societal impact of their actions. An ethical and long-term sustainable investment strategy is gaining popularity globally and empowerment lies in data and standards. The stakeholders now recognise the significance of responsible investing and the role of financial markets in fostering sustainable development. Analysis indicates that socially responsible funds have performed on par with the peers. In fact, some analysts believe that as ESG algorithms improve and funds gravitate towards finding responsible companies, they may outperform the conventional funds. The size of the ESG-linked investments in India is pegged at USD 30 billion and it is estimated to touch USD 240 billion in the next decade, as per cKinetics. According to a McKinsey report, ESG assets totalled USD 22 trillion across Asia, Australia, New Zealand, Canada, Europe and the US at the start of 2016.
Effective risk management will boost business continuity
Increased penetration, diversification in the financial markets and adoption of digital channels for distribution comes with inherent risks, namely that of financial crime, with organisations putting financial and management muscle to combat this threat. It is estimated that the global cost of cyber crime will reach $2 trillion by 2019, a three-fold increase from approximately $ 500 bn in 2014. Here again, technology such as big data, analytics, KYC utilities can play a considerable role in identifying and preventing financial crime. Financial institutions that are the first line of defence as well as attack have already begun leveraging on data, using technology extensively to manage and mitigate money laundering or terrorist financing risks, including the use of monitoring systems to identify suspicious activity.
Increasing use of technology, introduction of new asset categories and the need to mitigate the risk of financial crime on a war footing, are set to further change the nature of the investment management sector. This will mean that times are set to become even more interesting for the industry. Hence, intelligent data management will be most critical for effective asset management – starting from collating accurate data, to the usage of the data in languages that communicate with machine learning, further enabling robo-advisory and analytics.