Predicting the Future: A Problem in Asset Management

Traders Magazine Online News, April 30, 2018

Neill Vanlint

An ancient Greek philosopher named Haraclitus is said to have coined the phrase “The only thing that is constant is change.” 2,500 years later and these words ring truer than ever. In the world of asset management, it’s crucial that firms have a grasp on where things are heading so they can remain competitive, but it’s becoming increasingly difficult to predict the direction in which things might go.  

As ever, technology leads the conversation on change and if firms avoid new initiatives and fail to keep on top of trends, they will simply fall behind. The broadening use of ETFs and passive algo-based investing is an ongoing race to use data and analytics to develop the most sophisticated investment strategies. Firms also need to keep internal operating systems running as efficiently as possible. Technology can alleviate administrative burdens as well as improve investment strategy, so it’s important to judge which new technologies are worth integrating and, perhaps more crucially, which aren’t – a classic example being distributed ledger technology (aka Blockchain), which people cannot agree on what its full effect will be.

  

Most firms are still getting used to the changes from MiFID II and the long-term effects have yet to be seen. But the likes of MiFID II, Investment Company Reporting Modernization and Funding Liquidity will not be the end to all regulation. As the financial industry evolves, with new fintech firms and offerings appearing on the scene daily, and as trading goes evermore global, with accelerated growth in emerging markets, new regulation will come into play. Looking ahead, firms will have to examine whether to it will be worth investing in developing the systems in house or outsource them as well as ensuring they keep tabs on all of their operations.

On top of this, investor demands, and regulatory bodies, are turning towards sustainability with environmental social and governance (ESG) considerations on the rise. There is an undeniable trend across the globe where investors want a more social and environmental approach, and this demand is set to rise. Eventually, it’s likely investors will simply expect this to be incorporated into their portfolio, so firms will need to factor this into their ongoing strategy. Similarly, alternative investments, such as real estate, infrastructure or commodities, are becoming more popular. This is being spurred on by the ongoing market volatility which links to the current economic and political landscape – another key area which is proving difficult to read.

For more information on related topics, visit the following channels:

• Buyside