Investment managers’ 2018 first-half performance: On target

QuickLook Blog

As the half-time whistle blew during an exciting football World Cup match, a sudden thought entered my mind. How have investment managers performed in the first half of 2018?

August 1, 2018

A blog post by Ankur Gajjaria, senior analyst, Deloitte Support Services India Private Limited.

Have investment management (IM) firms been able to create new opportunities and score? Have they been able to defend their share of assets under management (AUM)? Our 2018 annual outlook report highlighted and predicted the key trends shaping the investment management industry. Let’s review the highlights of investment manager’s actions for the first half of 2018, and compare them to our expectations in the 2018 Investment Management Outlook.

Fast-tracking growth through M&A and alternative data adoption

Passive managers are winning the asset-flows battle, as outflows continue to haunt active funds. Moreover, the competition among passive investors is heating up, with a fierce battle for passive flows raging between the two leading managers.1

Gaining scale is an important growth factor for IM firms, and M&A has been the most sought-after option. Our prediction that the sector will register a record M&A year is on target as global M&A activity reached a new high in the first half of 2018, the strongest since 19802, when tracking started. As IM firms use M&A to grow, private equity (PE) firms, which are sitting on record cash amounts; are turning out to be willing buyers.3 A prime example is the recent $3 billion deal where a PE firm acquired a robo-advisor to merge it with a financial advisory firm in its portfolio.4 The merged entity provides services to clients throughout the retirement lifecycle and uses technology to provide a better digital experience to customers.5 This was the fourth-largest deal in the investment management space since 2017 and indicates the continuance of such large scale, strategic acquisitions over the next few months.6

In the quest for organic growth, investment managers continue to explore new alternative datasets for alpha generation. The alternative data space has also gained traction with long-only funds evaluating and experimenting with the integration of alternative data in their investment and internal processes. A few IM firms are going as far as evaluating how they might monetize their own internal data to aid their investment teams. Investment managers are also evaluating different alternative datasets (such as mobile geolocation, satellite images, and social media) to create new products. These datasets are now being used across asset classes (equity, fixed income, currency). In fact, a leading investment manager recently launched a series of active funds that use various alternative datasets as ‘investment signals’. 7

Cloud services helping to run more agile operations

GOOOOOAL! That’s the status of our prediction that IM firms would adopt cloud-based solutions to improve efficiency and agility in 2018. Four IM firms with combined assets of $9 trillion are now using the services of a single cloud provider.8 The discussion around cloud services for IM firms has now shifted from adoption to systemic risk concerns. Experts have raised concerns over investment managers concentrating their technology resources on a few cloud infrastructure providers. The task now for IM firms is to identify an appropriate cloud services model for a specific business function. This transition could help small- and mid-sized firms access cost-effective, scalable, mission-critical technology tools and analytics from third-party specialists, thereby leveling the playing field.

Digital service for customers

We also predicted the emergence of an integrated digital investment platform that raises customer experience levels. This too seems on target: Take note of Chinese firm Ant Financial’s AI-powered customer service platform called “Caifuhao” (which means "wealth" in Chinese).9 This integrated platform that supports IM firms with operational optimization, content generation, and risk management is already operational. In a market where investment products are mostly sold via third-party channels, the platform enables investment managers to interact directly with customers.10 This approach enables the investment manager to customize products, content, and solutions for clients, thereby gaining greater traffic.

In fact, IM firms using Caifuhao are finding that the collective number of daily visitors has increased 10 times and investments from returning clients have grown threefold.11 The significance of this platform can be gauged by the fact more than 90 percent of all Chinese IM firms have set up Caifuhao accounts to provide customized investment solutions for all client segments.12 Firms around the globe might want to look at leveraging similar platforms to build customizable investment solutions that can be scaled quickly. Employing AI could mean the solution to the “last-mile” customer connection for IM firms.

What do you think?

As I track the changes in the investment management space, firms seem to be exploring unchartered territories in data analytics, client experience, and investment solution customization. The second half of 2018 is poised to see some exciting action. What do you expect in the second half of 2018? Is your firm ready to advance and score—or would you prefer to keep a clean sheet? Join the conversation on Twitter: @DeloitteFinSvcs.

Vicky Ge Huang, “Passive flows still dominate but there is a caveat”, Citywire, 27 June 2018
Liana B. Baker, Pamela Barbaglia, “Global M&A hits historic high with media deal wave”, Reuters, 29 June 2018
Matthew Monks, “Financial Engines Sale Signals More of Money Management M&A Boom”, Bloomberg, 1 May 2018
Steve Garmhausen, “For Edelman and Financial Engines, 5 Great Expectations”, Barrons, 2 May 2018
Matthew Monks, “Financial Engines Sale Signals More of Money Management M&A Boom”, Bloomberg, 1 May 2018
Jayna Rana, “Blackrock launches ‘’quantitative active” fund range,” Investment Week, 11 June 2018
Yolanda Bobeldijk, “Systemic risks feared as Amazon cloud eats finance”, Financial News, 12 June 2018
9Jenny Hsu, “Ant Financial AI-powered service a boon for China asset managers”, Alizila, 20 June 2018
10 Ibid
11 Ibid
12 Ibid

QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The views expressed in this blog are those of the blogger and not official statements by Deloitte or any of its affiliates or member firms.

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