Money managers' future success will soon depend on significantly increasing their capabilities in advanced data and analytics at a time when market growth is not a given, a report from Boston Consulting Group said.
Tepid markets and overall volatility kept global assets under management relatively flat in 2015, with global money managers managing $71.4 trillion, up a mere 1% from the year before, according to BCG's annual Global Asset Management Report. As a result, managers will need to assess the state of their businesses and assess what capabilities they need to remain competitive.
Benjamin Sheridan, a San Francisco-based partner at Boston Consulting Group, said in a telephone interview that managers definitely have concerns about relatively flat asset growth.
More are asking, “How do we think about differentiating ourselves as managers?” Mr. Sheridan said, which will likely lead to advanced analytics and data going “mainstream.”
“On the point of it going mainstream, I think what you have seen, if you look across I would say historically five, 10 years ago, there would be a subset of small hedge funds working sort of heavily quantitative strategies or other strategies that probably necessitated them to invest heavily in data,” Mr. Sheridan said.
“I think what we're seeing now is even more fundamental managers” exploring investing in big data and analytics. He added that they're looking at these tools not to replace how they invest, but to supplement how they're thinking.
Those tools include technologies such as machine learning, artificial intelligence, natural-language processing, data visualization and predictive reasoning, technologies required for managers looking to take on “more-complicated investment strategies, trade at higher volumes, and execute more efficiently,” the report said.
Three types of front-office tools the report cites that are most frequently integrated are execution management tools to help traders, order management and compliance tools and portfolio management tools, all of which would increase efficiency and give the front office quicker access to testing, scenario analysis and other functions.
The report's data from 2015 show the shrinking margin for error for money management firms. Net flows, for example, remained relatively flat in 2015. Net flows as a percentage of beginning-of-year AUM were relatively flat at 1.5% in 2015, compared with 1.7% in 2014 and 1.6% in 2013.
North American AUM dropped about 1% to $36.1 trillion at the end of 2015, while European AUM rose about 3% to $19.6 trillion, and the Asia-Pacific region, excluding Japan and Australia, rose 10% to $5.2 trillion. Net flows as a percentage of AUM at the beginning of the year for Europe and Asia-Pacific were 2.5% and 3%, respectively.
Particularly strong in Europe were Germany, Italy and Spain, which each had net flows of 5% of beginning-of-year AUM for 2015.
In the Asia-Pacific region, both China and India had net flows exceeding 10% of beginning-of-year AUM.
BCG used its market database and also surveyed nearly 140 money management firms, representing $40 trillion in AUM. n