Transforming Asset Management with digital tools
At the heart of the financial news, banks’ digital transformation through more and more advanced technologies has become a reality and a competitive issue on which they are massively investing. Some institutions already want to replace Asset Managers with a type of Artificial Intelligence. AI can be more or less complex, based on algorithms that predict, forsee and analyse, explains Guillaume Dard (CEO, Montpensier Finance). With the intensification of its use and the complexity of algorithms, we will very soon work with self-learning algorithms.
AI applied to Asset Management
According to Philippe Collas (former Executive Manager, Société Générale), the latest breakthroughs in AI establish limits concerning the model without Asset Manager. “Markets are irrational […] so machines won’t manage these irrationalities better than humans” as well as their volatility. The same applies for the necessity of maintaining and monitoring the good functioning of the asset management systems.
We are speaking of “narrow” AI, explains Pascal Koenig (Partner Responsible of the Asset Management Industry, Deloitte), technology that aims at increasing the human capacity with the concept of “augmented manager”. Apart from the algorithms, data and its exploitation are key elements. The challenge lies in the analysis of financial data, as well as unstructured data attached to some industries and giving speed to the management thanks to semantic analysis.
“Markets are irrationals […] so machines won’t manage these irrationalities better than humans”
Philippe Collas, Former Executive Manager, Société Générale
Risks and regulations
Today, the implementation of new technologies in Asset Management is not drawing any concrete regulatory limit. France was the first country to accept Blockchain and sees Fintech growing exponentially. New regulations will come with technological breakthroughs and their adoption. Authorities will also be able to improve their monitoring methods by working on entire populations and no longer on samples thanks to AI (example of KYC).
“We duplicate a certain number of risks that we did not know before. There is a risk of dependency. Before that, we were dependent on fund providers and on data vendors. Now, we will depend on GAFAB (Google, Apple, Facebook, Amazon, BlackRock)”
Pascal Koenig, Asset Management Partner, Deloitte France
The danger of the decreasing margins
In a context where margins are more pressured every year, passive management is increasing. Margins are meant to decrease for managers that do not react. Management companies are living the same phenomenon as the producers against the big distributors in most industries. “Many Asset Management companies will earn 50% on classic OPCVMs [mutual funds] and when you are looking for more sophisticated products such as private equity and hedge funds, you fall at 25% of management commission. We are in a reversed logic: the more complicated the product is, the smaller the margin is for the distributor” explains Philippe Collas.
It is in this context that we work with actors like OneWealthPlace, that offers a solution based on blockchain, enabling to strongly reduce the costs of data management and make the distribution system more efficient, points Guillaume Dard.
At the time of MiFID and PRIIPs, regulatory constraints also have an impact on margins. “Asset Management has been for a long time in pricing power. It’s not the case anymore, first because the cost of constraints does not decrease” declares Pascal Koenig. “Management companies are still thinking that performance is enough. But performance is not enough”. With more than 55 000 funds in Europe, differentiation has become a massive issue. Hence the interest for management companies to work on their marketing strategy and to offer products according to the aspirations and objectives of the investors.
Technological solutions to maximise margins
Today, the problem of the Asset Manager is to manage the infinity of data. “We understand well that AI will be the key in our work because our brain, whatever its size, and our work time in a day won’t be enough” notes Pascal Koenig. AI will help synthesize the huge amount of information and extract what is essential for managers. It will then be possible to increase margins for producers and distributors again, especially thanks to a remodelling of the client experience. The same applies for data management that will be facilitated with the association of AI (personalized management) and blockchain (speed, control) that will generate enormous costs savings.
“The digitalisation of the world pushes to a global efficiency”
Guillaume Dard, CEO, Montpensier Finance
This round table was hosted by Fanny Berthon, journalist in economics at BFM Business and gathered many leaders specialized in Asset and Wealth Management such as Paul Raphaël, Vice Chairman at UBS Wealth Management, Guillaume Dard, CEO at Montpensier Finance, Pascal Koenig, Partner in charge of Wealth and Asset Management Industry at Deloitte France, Joop von Gennip, membre of the board at Neuflize OBC and Philippe Collas, former Executive Director at Société Générale.