How technology and megatrends are reshaping the investment industry
The asset management industry is set to undergo a period of transformative change. Demographic and regulatory trends have imposed gradual change in recent years, but technological developments are now injecting real urgency into the equation.
In the last few months, some excellent research has been written, which examines key trends in the investment industry, including the impact of technology upon customer relationships, investment processes and fund distribution. Here are some of the best papers:
The Future of Asset Management (Robeco, 2016)
Robeco examines the forces that are transforming the business of asset management. The authors demonstrate that the industry is set on a path of lower fees, but higher costs, with a technological battle to nurture customer relationships. The fund management industry will continue to grow, but within it there will be winners and losers. The paper discusses the continuing trend towards index investment, the resulting alpha-beta separation, and the rise of LDI solutions and multi-asset strategies.
How can Fintech facilitate fund distribution? (Deloitte/Alfi, 2016)
Fintech is proving to be an asset management industry game changer. This report examines the impact this recent phenomenon is having on the distribution model of the industry and the strategies that should be adopted by incumbent players.
Finding Big Alpha in Big Data: The Evolution of Active Investing (BlackRock)
This paper investigates how big data is reshaping the asset management landscape. The authors examine the effects of the ever-increasing volume of data available. They conclude that investors seeking to sustainably create alpha must invest in big data, or risk falling behind.
Structural Trends in Equity Market Valuation (Absolute Return Partners)
This Absolute Return Partners paper looks at the structural factors that drive equity prices, including Corporate Profits as a share of GDP, dividends and share buy-backs, demographics, interest rates and valuations.
The Investment Implications of an Aging World (PGIM, 2016)
This paper examines aging populations, now a worldwide phenomenon, and seeks to identify investment strategy ideas that can be implemented by institutional investors. By 2040, the number of those aged 65+ will double from what it is today to reach 1.3 billion. And it's not just a Developed World problem - two-thirds of the world's seniors live in Emerging Markets. The current aging trends will have profound implications for individuals, business and governments.
Expected Future Asset Class Returns for 2016-2020 (Robeco)
In this excellent 120 page document, Robeco present their forecasts for expected returns for major asset classes during 2016-2020. They also set out in detail the building blocks underlying these forecasts. They argue that longer-term forecasting is more reliable than short-term forecasting. Valuation corrections, for instance, are impossible to forecast on a three month horizon, but over a five-year period, some reversion to normal valuations is likely to occur. Furthermore, the impact of unexpected economic or political developments is more likely to even out, during a five year time frame. Robeco forecast five year global equity returns at 5.5%pa.