To many people, the term asset management is a relatively broad and static overview of investment. In reality, the basis and the structure of modern-day asset management is much more dynamic, changing continuously.
Some of the areas influencing modern-day asset management include technological advancements, ESG investing and sustainability, regulatory changes and shifting demographics. When it comes to asset management it is essential to understand future trends, using a variety of different processes to make informed predictions. Not easy!
Trend 1: Technological Advancements and Digital Transformation
Matching asset management with a client's specific requirements in the short, medium and long term is central to investment success. As much as technology is used to identify particular asset classes and investments, it is also heavily used to fully understand a client's requirements. This brings in the growing influence of artificial intelligence and machine learning in portfolio management and matching asset allocation with the client's specific investment risk profile.
We then have the use of so-called robo-advisers, which assist with the active management of investments. Ultimately, the investment manager will make the decisions concerning asset management and the allocation of funds. However, there is much more technical assistance available today.
Trend 2: ESG Investing and Sustainability
Undoubtedly, environmental, social and governance (ESG) responsible investment and sustainability will be more prominent in asset management as we go forward. While perhaps more evident in the Far East at the moment, we are seeing the emergence of new regulations in the UK which will place ESG front and central.
The fact that both government and private funding may be limited for those companies that have a less than focused attitude towards ESG will influence the way investment managers perceive them. Consequently, when looking at asset management, ESG will be a growing influence as we advance. We are quite literally just at the start of this investment revolution.
Trend 3: Regulatory Changes and Compliance
Regulation and compliance will always play a significant role in asset management and the allocation of investment funds. Recently, we have seen the introduction of MiFID II and the Retail Distribution Review (RDR), which are creating a different structure for investment managers going forward. While these two developments contain no surprises in their aims, it is the fact that investment markets, investment managers and advisers will need to operate under a different structure which makes them so important.
One particular area of interest concerning RDR is the treatment of investors in retirement. Historically, when it comes to asset management and investment management, much of the focus has been on pre-retirement finances. Under the new regulations, financial advisers must demonstrate how they accommodate and appreciate life in retirement and the different financial challenges. For example, while the focus will switch towards income, there is also a need to maintain capital appreciation as we advance. Not easy!
Trend 4: Shifting Demographics and Investor Preferences
For many years there's been talk of an ageing population which brings about several challenges concerning asset management. For many people, there is also the issue of an extended working life, which can influence, for example, pension contributions and investment expectations going forward. The various generations, such as the millennials, generation Z and generation alpha, also have very different personalities and views on investment.
As mentioned above, social responsibility will also play a more significant role in asset management. Again, balancing this new investment/asset allocation approach with acceptable returns will not be easy.
Conclusion
There is no doubt that the relatively simple structure of asset management from years gone by is changing. This is now becoming a more dynamic element of the financial services industry, and advisers and investment managers need to adapt to new trends – with ESG one of the strongest in recent times. Technological advancements, regulatory changes and shifting investor preferences need to be considered.
While technology and AI are becoming more prominent, investment managers will ultimately live and die by their asset management skills and ability to identify long-term trends. The social responsibility element of investment has been less of a consideration in the past, but it is now the main focus for many.