Headline Verdana Bold - 2020 Investment Management Outlook Crossing boundaries for profitable growth
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Headline Verdana Bold 2020 Investment Management Outlook Crossing boundaries for profitable growth January 2020
Agenda
2020: Crossing boundaries
Finding growth with markets and products
Creating operational efficiencies
Customer experience and engagement
Question and answer
Copyright © 2020 Deloitte Development LLC. All rights reserved. 2
2020: Crossing boundaries Copyright © 2020 Deloitte Development LLC. All rights reserved.
What are some challenges
Dramatic change in mix of assets over the last ten years facing firms?
Over the last decade, a portion of AUM has moved into passive funds Assets shift
Relentless fee
and private capital as they continue to outperform and margin from active to
pressures passive funds
US funds asset growth and performance, 2009-18
US private capital2
Divergent
Large firms
global
US active funds3 using scale
economic
for growth
growth Industry Investor
pressures preference
US passive funds1
Concentration
Economic
of success
North American hedge funds4
What will leading firms likely
do?
Sources: 1ICI Factbook 2019
2Preqin
Adopt to a save- Modernize the Provide elegant
to-transform three lines of investor
3S&P Global Market Intelligence
approach defense experience
4Eurekahedge
Copyright © 2020 Deloitte Development LLC. All rights reserved. 4
Finding growth with markets and products Copyright © 2020 Deloitte Development LLC. All rights reserved.
Investment management firms
Making the right growth choices are likely to become more
Investment managers make their growth choices for both the
aggressive in 2020
short-term and long-term horizons
Market and product development growth alternatives
New capabilities – Emerging technologies
PE growing – artificial intelligence
implementing (AI) and alternative
permanent capital data to open new
pools markets
Action steps to consider for
profitable growth in 2020
Evaluate growth strategies across
markets and product categories
Identify challenges and measure
risks for each strategy
Prioritize growth strategies to
maximize profits and margins
Pursue high priority strategies to
Source: Deloitte Center for Financial Services analysis
balance long and short-term success
Copyright © 2020 Deloitte Development LLC. All rights reserved. 6
Diversification: Offering new products in new markets Winning through
M&As continue to be an important route for growth through
diversification in the mature investment management ecosystem
diversification
M&As for scale & capability Value-chain mergers
M&A not a panacea for
Add services along value chain achieving scale and serving
to offer clients solutions across new clients4
Firms in North America
80% and Europe account for financial data, advisory, and
of M&As don’t meet their
70%
80% of M&A activity1 alternative investments
financial goals due to
integration issues5
Principal Financial’s acquisition
Achieving scale and adding new
of Wells Fargo’s Institutional
capabilities are key objectives for Retirement and Trust business3 What could firms do for
many investment manager M&As better M&A outcomes?
Implement Integration
Pre-merger Employer sponsored Institutional
Brookfield Asset Management and businesses retirement plans trust & custody Management Office (IMO)
Oaktree Capital deal2 to manage information
Combined business to have: Pre-merger Acquired flow and escalate issues
businesses businesses
before they lead to bad
• $475 billion in AUM
outcomes
• Offerings covering private debt,
equity, infrastructure, and real estate
funds
2x Merger impact to Principal’s
retirement AUM
Develop integration plans
Sources: 3Rebecca Moore, “Principal, Wells Fargo combination to before the transaction
provide broader range of services”, Plan Sponsor, July 1, 2019.
Sources: 1Analysis of M&A data sourced from SNL database
4Waite, Massa, Cannon, “Asset Managers with $74 trillion on brink of
closes
2Joshua Franklin and Debroop Roy, “Brookfield to buy most of Oaktree
to build juggernaut to rival Blackstone,” Reuters, March 13, 2019. historic shakeout”, Bloomberg, August 8, 2019.
5Baber Din, Varsha Dadlani, and Joel Peirson-Hagger, “Managing M&A
Copyright © 2020 Deloitte Development LLC. All rights reserved. 7
integrations: A guide for investment and wealth managers”, Deloitte
Performance Magazine 30, 2019.
Market development - Bringing existing products and services to new investors
Investment managers can leverage technology to grasp market development opportunities in Asia and
provide alternative investments for retail investors
Asian • 62% of the Millennials and 63% of the aging workforce globally1
demographic • $2.6 trillion public funds opportunity for China in 20202
opportunity • Diversity of the region poses unique challenges
Regulatory • Allowing retail investors to get access to alternative investments
Market • Firms can lower the minimum investment amount for an
access
development alternatives fund to provide greater investor access
opportunity • Additional controls required to mitigate risk for investors
opportunity
• Platforms, coupled with investment advice and risk controls, may be
Modular important ingredients in a coming change that opens access to
technology alternative investments
opportunity • For example, modular platforms may be used to support the subscription,
administration, and reporting process for alternative investments
Sources: 1Deloitte Center for Financial Services analysis of population data from United Nations, Department of Economic and Social Affairs, Population Division (2019).
World Population Prospects 2019, Online Edition. Rev. 1, made available under the Creative Commons license https://creativecommons.org/licenses/by/3.0/igo/ (accessed
on October 1, 2019).
2Doug Dannemiller, “China’s Investment Management Opportunity”, Deloitte, November 2019.
Winning through Develop deep Resonate culturally - Build long-term view
market development 1 understanding of 2 emerging investor segments 3 of target market
new target markets vs. traditional customers segment
Copyright © 2020 Deloitte Development LLC. All rights reserved. 8Product development - Creating new products for existing markets Winning through
Investment managers are crossing traditional industry boundaries by changing product development
investment products across categories Offering new products to
existing, but evolving
MUTUAL FUNDS AND ETFs customers can be an
important growth strategy
Sustainable and Volatility and downside Thematic funds on
ESG funds protection funds new megatrends
How can investment
managers adopt a
change-oriented product
mindset?
Collect insights into
ALTERNATIVE INVESTMENTS investor’s evolving needs
Develop new products
Permanent capital Opportunity tailored to realize the
assets by PE firms Resurgence of BDCs zone funds benefits from both
regulatory-driven change
and market opportunities
Embrace cannibalization of
existing products to optimize
the growth potential of new
launches
Copyright © 2020 Deloitte Development LLC. All rights reserved. 9Market expansion – Finding new growth with existing products and markets
Combining alternative datasets with artificial intelligence could help active managers revitalize their
investment processes
PASSIVE OUTPERFORMS ACTIVE ALTERNATIVE DATA + ARTIFICIAL INTELLIGENCE
• Hedge funds, long-only managers and PE firms are
< combining alternative data and AI for augmenting
investment decisions
• For deriving optimal results, firms could have in place the
following:
− Technology infrastructure
• Passive outperformed active for − Strong data governance and quality programs
past 9 years1 − Mix of data science, engineering and investment
• May require credible revitalization analysis talent
of investment process − Collaborative culture
• Active managers may refresh their offerings by providing compelling
Winning through investment strategies with the desired portfolio wrappers
market expansion • Long only managers could offer active equity management in an ETF
wrapper in 2020
Sources: 1ICI Factbook 2019 and S&P Global Market Intelligence
Copyright © 2020 Deloitte Development LLC. All rights reserved. 10Creating operational efficiencies Copyright © 2020 Deloitte Development LLC. All rights reserved.
A quarter of firms that
Save-to-transform approach can drive operational efficiencies achieved operational
Transform operations by investment in technology to enable growth efficiency invested more in
technology than peers
Characteristics of profitable growth
25% firms with profitable 75% firms with stagnant
growth or shrinking margins High
efficiency
Annualized revenue Sizable tech
growth (2015-18) spend
Margin (2018)
Annualized cost
growth (2015–18) Higher profit and margin
growth
Technology spend
as percentage of Higher revenue per full
revenue (2018)
time equivalent (FTE)
Revenue/FTE
$1.1M (2018) $930K Lower growth in annual
Source: “Investing for Growth, Performance Intelligence 2018,” Casey Quirk, a Deloitte business, and McLagan.
cost 12
Copyright © 2020 Deloitte Development LLC. All rights reserved.Transform operations to eliminate silos Illustration of operational
Firms investing boldly in revamping their people, processes, and technology transformation through
approach could derive operational transformation benefits golden copy IBOR
PROCESSES
The golden copy investment book
• Rightsourcing of record (IBOR) eliminates silos
• Manage third party risks across the front-, middle-, and
back-office for achieving greater
operational efficiency
Benefits
View real-time cash and
Front
position data for optimal
office
PEOPLE TECHNOLOGY investment decisions
• Right skills • Enabler for people
• Purple people and processes Access real-time positions
Middle across asset classes,
• Humans with • Efficient internal
office portfolios, and funds
machines and external data
usage
Minimal dependence on
Back
third-party service
Source: Jesse Bonanno and Jared Goldstein, Ahead of the curve: Forward-looking solutions for tomorrow’s leading asset management firms, Deloitte, office providers; data audit
2018
13
Copyright © 2020 Deloitte Development LLC. All rights reserved.Driving operational transformation from risk management
Investment managers can adopt an aggressive risk management approach that matches their growth strategy
STRATEGIC CHOICES FRAMEWORK KEY TAKEAWAYS
Identify industry trends
early to evaluate their
strategic impact
Shift risk management
from defense to offense
to drive transformation
Move in a comprehensive
manner using a risk
intelligent approach
Failure to change can be as risky and
detrimental as making ill-considered
changes
Source: Deloitte Risk and Financial Advisory, 2019
14
Copyright © 2020 Deloitte Development LLC. All rights reserved.Modernizing risk management acts as strategic enabler Considerations for the
Cybersecurity, regulatory and compliance, and operational risks are the top
future
challenges for many investment managers
Top risks from investment managers' perspective over the next two years
Use risk management function to drive
new developments to the same extent it
is used to protect existing operations
Note: Some percentages do not total due to rounding.
Implement algorithms to monitor risks &
KEY RISKS AND RECENT DEVELOPMENTS record operational results
Cybersecurity Regulatory / compliance Operational
Top priority for both US Quarterly liquidity stress tests for Use of alternative data
and EU regulators European fund managers attracting regulatory Design modular operations linked though
attention
a common framework of processing
power and data
Source: Global Risk Management Survey, 11th Edition, Deloitte, 2019 15
Source: Global Risk Management Survey, 11th edition, Deloitte, 2019
Copyright © 2020 Deloitte Development LLC. All rights reserved.Customer experience and engagement Copyright © 2020 Deloitte Development LLC. All rights reserved.
Why investment
Performance differentiates while delightful customer experience managers should make
(CX) also helps investment managers retain and grow assets CX a strategic priority?
These seven drivers of investment management CX help deliver day-to-day
excellence in the manager-client relationship1
76% of the retail and
institutional investors surveyed
think CX contributes to
manager terminations.2
High-net-worth investors that
were surveyed rank
“consistent experience” as one
of the top drivers of investor-
satisfaction. 3
Sources: 1 “Engaging the whole firm: Improving client experience in institutional and wholesale investment Management”, Deloitte LLP, 2019.
2 Matthew J. Baker, Harry H. Datwani, and Jeffrey A. Levi, “Distribution 2.0”, Casey Quirk by Deloitte, March 2019. 17
3 John D. Anderson, Allie Carey, “Your high-net-worth client strategy” SEI December 2, 2018.
Copyright © 2020 Deloitte Development LLC. All rights reserved.Saxo Bank onboarded
Client onboarding - The first opportunity to create a positive 12x more clients with
impression robotic process
Digitization can help alleviate pain-points in the onboarding process automation enabled
platform
Retail clients Institutional clients
Faster identification
Pain point Pain point Data integration from
Losing potential clients due to Expensive portfolio multiple sources speeds
cumbersome onboarding process customization requirements by up client identification
institutional clients process.1
Possible solutions Instant account
Digital platforms supporting Possible solution funding
biometric authentication Modelling client profitability at
Clients can fund their
Centralized data storage proposal stage
account within one hour of
application.1
Benefits Benefit
Faster onboarding Seamless transition from Scalability
Improved client-conversion proposal to onboarding Onboarded 12X more
rate
clients than the typical
monthly average, without
additional headcount.1
Source: 1 Scott Carey, “Saxo Bank reduces customer onboarding to one hour using machine learning,” Computerworld,
June 3, 2019. 18
Copyright © 2020 Deloitte Development LLC. All rights reserved.Some key components
Client reporting and communication – From static to dynamic of successful client
approach reporting
Most customers expect personalized information delivered through digital transformation
channels with the tools to perform customized data analyses
One “golden source” of
What can investment managers do to keep up with customer information may be a
expectations? prerequisite for custom
reports.
Transition to digital interactive
reporting
Enable custom reports and data
analyses End-to-end security
should be prioritized as
the data are accessed
from outside the
However, there are risks associated with this transformation organization.
Data security risk
Strong quality controls
are critical as the
Reputational risk interactive digital
reporting process is driven
by clients. 19
Copyright © 2020 Deloitte Development LLC. All rights reserved.2020: Thriving in new territory
Investment management firms that develop and execute upon strategies that not only push the boundaries
but cross them could lead the pack
Find areas for Confidently cross Develop the CX
growth out of the to gain
comfort zone competitive edge
When the growth strategy Modernize the risk Prioritize customer
discussion is passionate and management function to one experience, and find ways to
controversial, that is a signal that helps the firm evaluate delight customers at all
that your firm is pushing out strategies and is a catalyst stages of the customer life-
of its comfort zone, which for action. cycle.
may be a good sign.
20
Copyright © 2020 Deloitte Development LLC. All rights reserved.Question and answer Copyright © 2020 Deloitte Development LLC. All rights reserved.
This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms. Copyright © 2020 Deloitte Development LLC. All rights reserved.
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