Fund Managers Fear Silicon Valley Takeover

Global managers foresee new entrants, new models, and a new client focus, according to State Street.

More than three-quarters of asset managers believe it is likely they will face competition from players not traditionally based in the industry, research has found.

“As new entrants eye the sector, success will increasingly depend on technology and data analytics.” —Jane Mancini, State StreetSome 79% of managers responding to a survey by custody bank State Street said it was somewhat or highly likely they would be competing with a “new entrant such as a technology or non-financial services company within the next five years”.

“Our findings show that a number of asset managers are overhauling their approach to respond to changing investor needs and new competition—from offering new investment solutions to making strategic acquisitions to become more competitive and grow their businesses,” said Jane Mancini, senior vice president and head of asset manager sector solutions at State Street.

Advanced technology will underpin the new offerings, providing investment managers with a much richer and complete view of risk and performance across their client portfolios, the firm said. In another recent survey, the bank found 81% of asset management firms had increased their technology spending over the last five years.  

“As new entrants eye the sector, success will increasingly depend on technology and data analytics to address the growing demands of clients for more personalized and sophisticated information and investment solutions,” Mancini said.

This most recent report showed managers felt they must adapt to new client needs, which meant focusing more on multi-asset strategies, providing greater transparency, and delivering a more personalized approach. 

Already, 74% of managers said their clients’ growing need for customized solutions and services was shaking up their business models while 79% said client demands for increased transparency was having a significant impact on their business strategy.

 “Asset managers are focusing on improving their client and competitive proposition; forging closer partnerships with investors; providing clients with the integrated yet highly granular view of portfolio risk they need and developing innovative models that will see off the threat from new market entrants,” said Mancini. “They also need to invest in their operating infrastructure to allow them to be more transparent, insightful, and cost efficient for investors.”

Almost all—96%—said they felt under further pressure to reduce costs.

This month, a report from Cerulli found managers had begun actively engaging with investors to provide what these clients need, rather than propose just what they might find attractive.

Almost two-thirds of managers responding to the State Street survey said clients were demanding a more personalized approach to help them understand their risks compared to a year ago.

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