The companies of asset management
What are the 2022 trends of the asset management industry? For local governments, asset management is an important sector that can help generate liquidity and enable more efficient allocation of funds. Financial intermediaries connect those who have a surplus of financial resources (in general the savers) with investment opportunities by companies or public administrations.
In this way, intermediaries are able to shift resources from those who are more willing to risk and invest their own capital to those who need rapid access to liquidity in the short term.
Among all financial intermediaries, asset management companies have a special role, because they are the only ones, together with banks and investment companies with variable capital and investment companies with fixed capital that can manage, among many other services, the activity of collective and individual savings management. This means that asset management companies have to deal with the financial resources of many private savers, who entrust them with their assets in the hope of making profitable investments.
In this sense, it can be said that there is a strong fiduciary component in the relationship between asset management companies and private individuals.
This premise is necessary to better appreciate the trends of the asset management industry in 2022.
1. 2022: a year of contrasts
When it comes to trends of the asset management sector, the first question that arises is: how is this industry performing?
The banking sector has relied on asset management to provide a cushion for falling interest rates and reduced reliance on credit. This gave the sector a strong push, which resulted in significant growth. It took the Italian asset management industry about 14 years (from 2003 to 2017) to reach €1.200 billion in assets under management, with an increase of 137% in November 2017.
In general, therefore, the trend is that of consistent and continuous growth.
However, this trend seems to have stopped. In fact, 2018 was a particularly hard year for the sector. After an initial positive start, the collection of asset management products began to slow down. In particular, as reported by Wall Street Italia: “In the first six months of the year, €9.3 billion was raised, with the months of May and June showing negative results of €6.9 billion and €570 million respectively.”
What was most noticed by experts was the significant contraction in assets managed in bond funds and portfolio management, which corresponds to an over-expansion of the share of wealth held in the form of liquidity.
This year seems to be following the same trend. The first few months of this year have not stood up to the comparison with previous years, although the market seems to be holding up.
What does this mean?
It may signify that savers are holding back, perhaps preferring a wait-and-see approach instead of investing, which slows down savings growth. However, this hasn’t resulted in a real collapse, thanks to the effective network of consultants developed over the years.
Banks would gradually shift their focus from lending to brokerage and asset management services, thereby strengthening their advisory services. There isn’t a single reason for this slowdown, but a series of events that have impacted the industry.
One is certainly the great volatility of financial markets, which are “capricious” in nature and which have shown themselves to be particularly unpredictable in 2018.
A second reason is certainly the introduction of the new Mifid 2 regulation, which, with a view to protecting the saver, imposes greater transparency on financial intermediaries, requiring the disclosure of returns and details of costs incurred, in the statements. In this way, the consultants found themselves having to justify any excessive burdens, which were not previously clear.
This may have led to a certain crisis of confidence in savers, as it emerged from a study by Esma that in the decade 2008-2017 the costs of equity instruments placed in Italy (including underwriting and redemption commissions) accounted for 37% of gross performance, well above the European average of 24%. In the case of bond funds, commissions account for 33.5%, compared to the continental average of 27%.
But now, the state of emergency has ended and the macroeconomic framework for 2022 seems to be very positive, with growth expected to be around 4.5% by the end of 2022. Growth will be supported, on the one hand, by the strong demand for goods and services following the exit from the pandemic crisis; on the other, by the numerous and huge recovery plans launched by the governments of many countries.
2. Robot confidence
The issue of trust is very important, and it’s no coincidence that this forms the basis of the second trend: the use of Artificial Intelligence.
Again, the trend is not just for 2022, and it can be extended to both the financial intermediation sector and asset management. Many players in the sector are showing a growing interest in the tools and opportunities that “smart robots” provide, i.e. robots that are able to learn from users’ actions and react accordingly.
In this sense, BlackRock, one of the world’s largest investment companies, was among the first to explore these new technologies, equipping itself with Aladdin, a digital platform for market analysis and search for investment solutions.
To give an idea of the importance of these tools in such companies’ financial strategies, according to The Economist, this platform has been entrusted with the investment choices of 85 institutional clients of the some of the world’s largest funds (including Deutsche AM and Schroders) for a total of $20 trillion. Obviously, BlackRock is not the only example. Some funds are managed by machines alone: this is the case of AI Powered Equity Etf, which thanks to a system developed by IBM’s Watson AI, is able to process big data on 6,000 U.S. securities in real time and without interruption.
In this way, it can perform complex analysis and correlations, it can cross-reference news and probe unstructured data such as social media conversations, and then find up to 70 underrated actions with high turnover.
As far as robo-advisors are concerned, i.e. those that have a direct relationship with customers and that are now widely assimilated among European market players, there is MoneyFarm, who recently inaugurated the use of chatbots in order to provide customers with a personal banker based on Artificial Intelligence technology able to interact with the user through Facebook Messenger. There is also CheBanca!, which recently developed its own robo-advisor, Yellow Advice.
3. It’s a whole chain
Another trend is the adoption and diffusion of Blockchain technology in the asset management industry.
Blockchain is a system of data collection and management, structured in blocks, that contains transactions that are linked together in such a way that each of these transactions initiated on the network must be validated by the network itself through the analysis of each block. In other words, Blockchain works as a kind of shared public register that stores assets and transactions on a peer-to-peer network.
Its function is to enable management of all the collateral information to a transaction through cryptography between the participants of the network, which verify the package of information present in each block from time to time.
This makes the data unchangeable since its modification requires “collective” action. The content of each block, in fact, can be modified only through an operation that will require the approval of the majority of the nodes of the network that will not have any impact on the “historical” information. Each modification, in fact, leaves a trace on the path of the information itself.
Such technology has, of course, a considerable revolutionary charge for the sector, which is nevertheless showing signs of considerable openness in recent years. There are several organizations who have successfully completed the first tests to distribute mutual funds through Blockchain in order to ensure greater security and significant time savings in carrying out procedures that would otherwise require five or six days.
Moreover, it is precisely to obtain benefits of this kind that the players in the savings sector are implementing this technology. Thanks to Blockchain you can “synchronize operations”, i.e. give fund managers, platforms, traders, custodians and customers freely and simultaneous access to data.
In this way, it is possible to obviate the fact that trading, settlement, or distribution operations are not synchronized in real-time and this can cause costly information misalignment that cost both savers and brokers.
For this reason, those who support the development and application of this technology believe that only in this way can greater efficiency and economy be guaranteed to the sector – by making errors marginal – as well as easier, and more effective access to investment funds.
Economic projections also confirm the potential of Blockchain. It emerged at the 2021 World Economic Forum that in eight years, as many as 12% of the world’s GDP will be produced directly by activities related to Blockchain.
4. Personalization for a new customer-consultant relationship
Another particular trend that affects the trust between savers and financial intermediaries is the personalization of investments. This means setting the relationship between client and professional on a basis of greater transparency and sharing of investment choices.
The saver must be fully aware of these choices, and increasingly asks to become an active and central part in all phases of the process.
It is no longer enough to profile an investment solely on the basis of the propensity to risk. It’s also necessary to take into account the needs of individuals, which each financial activity must aim to meet. This, among other things, can be an excellent way to recover the confidence of Italians, which is very low.
Italians were recently asked about the reliability of banks and institutions providing banking or insurance services and 39% said they were more sceptical than before. In order to involve savers in investment choices, it is necessary that all financial intermediaries also invest in private financial education.
5. Saving becomes social
This too, on closer inspection, is a trend that is becoming more and more established within the savings industry and, in general, among financial intermediaries. Social platforms are useful for communicating with customers and creating interest around the theme of managed savings.
Obviously, social networks are just one of the many touchpoints that digital transformation allows companies to use to reach savers.
There are many examples, including things like company blogs or newsletters that serve up useful financial information in addition to information on their products and services.
Among other things, the differentiation of content is a specific advantage of social, which should not be underestimated, given that you can target the audience of reference in an increasingly precise and surgical manner.
A proper digital marketing strategy should also include the integration of different channels, giving each a specific role. For example, LinkedIn can be used to provide very specific and sectoral content to financial intermediaries and operators. Instead, Facebook can be employed to reach a wider audience of cross-consumers.
In both cases, the savings management company has the advantage of making itself known not only by talking about its services and products but by reaching its customers (current or potential) with engaging and relevant content.
Among other things, this allows the company itself to become a point of reference for professionals or for citizens who want to invest their savings, and equally important, it helps build trust.