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The 'great resignation' and shifting asset classes trigger new thinking.

Asset Managers say: "We’ll build, partner, or outsource."

Market gyrations spur operating decisions

Looking at the current state of the industry, asset management had a really good run with asset values reaching $100T earlier this year. But market pressures and volatility have returned in force, with managers scrambling to capitalize on operating model evolution and new market opportunities.

Now the goal is to operationalize, rationalize and make processes and technology sustainable. Let's be clear minded - we've learned a lot. Managers are making hard technology and operations decision: ‘we’ll do this in house, for these we'll partner with and for these, we’ll outsource’. These decisions have been triggered by necessity because firms are challenged to find the people expertise and resources at their price point - both shifts are occurring.

The position business leaders are taking as a result is: we're confident someone else can do it or we will partner. This type of specialization and resulting decisions are driving core business strategy.

Innovation and a shifting labor force

Firms have struggled to keep innovation on track during remote work. Innovation often comes from serendipity or creating by accident. It has indeed been difficult because those undefinable pieces that develop when people are physically working together are harder to come by. It is the reason asset managers are pushing outside the norms of how to spur innovation.

New kinds of relationships between employers and employees have developed. We’re less tied to the work family with remote work. A distributed workforce allows CEOs to make more outsourcing decisions: it’s clearer “the work doesn't always have to be under my roof" to get quality results with a quality provider.

The labor market is dislocated; it’s hard to find people at any price. Asset growth has enabled and been the impetus for this challenge. To add to this, the blend of assets that firms are managing continues to change and is becoming more specialized – take, for example, crypto assets. So, the type of work expertise required has also changed. There is currently an imbalance- but this won’t last. Supply and demand will eventually align but this can’t be changed overnight.

We surveyed 200 asset managers to find out what keeps them up at night. Find out what they plan for 2022.

New asset classes spur activity

Private markets are hot right now - breathtaking in debt and equity both. Operationally this is a challenge for most firms. Private markets equate with lots of paperwork, lawyers, extra facilitators, lack of price definition, control, and servicing. Asset owners have always been involved in private markets; and now more traditional asset managers are becoming active as they identify opportunity for diversification and growth.

We are all experiencing the crypto evolution – a $2T marketplace getting closer to the global hedge fund market and in the hands of just a few movers. Crypto 2.0, blockchain, smart contracts and the like are becoming more functional, now moving to web 3.0. The opportunity is there and is exciting for the asset management industry – a new platform providing all the same things in a different way. People want to invest in this ecosystem. For Asset Managers, this is a growing part of the global economy. The services that allow this ecosystem to hang together and grow - digital transaction and smart contracts, for example, will produce a new batch of economically viable companies to invest in.

From an operational perspective, the way investors participate now is direct. Private currencies, high fees, tech based. The SEC has not yet allowed asset managers to create products for institutional investors and retail. This is a fascinating operational challenge for asset managers - how to invest, how to evaluate firms, how to get into the action? Asset managers are directly investing in companies such as Coinbase. This is a quasi-custodial bank and an exchange which is highly marketed to Asset Managers. They are aiming to launch crypto minded funds amid growing regulatory activity. Traditional service providers will likely get a "digital asset" license.

Traditional asset managers and traditional private equity firms will use outsourced providers for work, like asset valuation, which will help them report to investors and regulators. This is the way they will solve for nonstandard, complex markets. Workflow tools will be key – determining which steps can be automated, and manual processes reduced. Lastly, they will need effective alerting.

ESG global standards are still ‘apples to alligators’

Finally, ESG will continue to be a force this year. Asset Managers want 2022 to be the year where investors are comfortable with how the industry and individual managers move forward – the company itself and then how it implements ESG as a credible, sustainable part of its investment process. This is the path – but it’s unclear to what extent we will get standard approaches. It’s still an 'apples to alligators' problem globally. While the EU is ahead of standardization and a framework with SFDR, actions are not at crisis level. It’s not like MiFID - more in the realm of ‘crisis in the queue’.

About the author, Philitsa Hanson

Philitsa Hanson is the Global Head of Product for Linedata Asset Management. During her 18 year tenure at Linedata, Philitsa has worked closely with various types of asset managers including institutional investors, private wealth managers, and hedge funds to improve their operations.

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