Managers not in a rush to return back to office

Money managers navigated the coronavirus-altered environment fairly smoothly after shelter-in-place dictates around the world forced employees out of their offices since mid-March.

But most managers aren't rushing to decide what the future of work will look like at their companies and when offices will reopen because they don't have to.

Thanks to heavy reliance on technology, investment firms find that their homebound employees can trade, invest, research, engage with clients and remain in close communication with work colleagues with few hitches.

"In what was a sudden, unexpected, immersive experience, working from home happened quickly and remarkably seamlessly for the entire investment industry," said Kevin P. Quirk, a Darien, Conn.-based principal of Casey Quirk, a practice of Deloitte Consulting LLP.

"Asset management has always been an in-the-office-focused industry and that will change. The industry will not go back to being office-bound. Work deployment will look different, probably implementing a hybrid structure with most employees working remotely, connected with each other and clients by technology," Mr. Quirk said.

But at a relatively early point in the pandemic crisis, Mr. Quirk said most money management companies are not ready to make firm decisions about the future of their workforce, operations and real estate footprint.

The post-COVID-19 future of institutional asset management will also see a continuation of the industry's ongoing consolidation among managers; more investment concentration by asset owners; more closures of firms that can't find a new owner; and job losses as investment companies adopt more efficient, cost-effective structures, said Andrew H. McCollum, managing director of investment management at Greenwich Associates LLC, Stamford, Conn.

"If you had told me three years ago that we could manage $3 trillion from home, I wouldn't have believed you," said Richard F. Lacaille, the London-based global chief investment officer and executive vice president of State Street Global Advisors.

"Nearly everyone (at SSGA) is working at home in the midst of this huge health crisis. Our technology systems have worked well. They weren't flawless, but it was a good test of the operational resilience of our systems. We owe a great deal of praise to our middle-office workers," Mr. Lacaille said.

Like other large money managers interviewed for this story, SSGA and its Boston-based parent company, State Street Corp., are evaluating "a very measured, multiphased return to work," Mr. Lacaille said.

"There's no rush to get people back into the office. We have to consider each person's conditions," he said.

SSGA's existing work arrangements already offer employees a degree of flexibility depending on their roles, managers and departments, but going forward, Mr. Lacaille said there may be more latitude with fewer people working in offices around the world "now that we've all crossed the Rubicon of people working remotely."

SSGA managed $3.12 trillion on Dec. 31.

Future work arrangements notwithstanding, money managers and their consultants agree that the COVID-19 crisis is accelerating existing trends in the investment industry, including:

Large-scale, efficient technology now is essential to every aspect of a money manager's operations.

Technology will enable enhanced, customizable virtual meeting and digital engagement with investors, including specialized research and consultation with asset owners.

Work arrangements and schedules will be more flexible, fully staffed offices likely will disappear, and employee engagement will be needed to maintain firm culture given the increasing absence of day-to-day, face-to-face contact.

While most firms won't drastically change their investment strategy lineup, more managers will add ESG and sustainable investment funds to meet investor demand, as well as strategies that will exploit current market conditions.

"The COVID-19 crisis hasn't introduced a new trend to the asset management industry, but the impact of the COVID-19 crisis on global markets has revealed stronger differentiation between winners and losers," said Lubasha Heredia, managing director and partner in Boston Consulting Group's New York office.

Winners will include companies with relatively stable assets under management, low net outflows, advanced technology, digital client engagement programs, solid investment performance and talented staff.

Losers will include firms that "already were somewhat dented" by performance issues, net outflows and high costs, Ms. Heredia said. She declined to identify managers in each category.

Manager and consultant sources were adamant that technology advancements in asset management will be the biggest, fastest, most important drivers of change and success in the investment management industry.

All money management executives interviewed by Pensions & Investments for this article said their firm's technology platform was key to managing money remotely now and in the future.

The world's largest money manager, BlackRock Inc., New York, is among the strongest proponents of technology and is the current tech heavyweight in the investment industry, said Catherine A. Seifert, vice president and equity analyst at CFRA Research Inc., New York.

"The pandemic is bifurcating the investment industry and widening the gap between the haves and have-nots. BlackRock dominates the investment markets they are in, and Aladdin is the moat around BlackRock's business that helps them keep ahead," Ms. Seifert said.

The Aladdin platform's high-level risk analytics, portfolio management, reporting and public market trading capabilities were utilized by a "very broad" base of users during the volatility of the past few months to understand market risks and manage portfolios, said Sudhir Nair, managing director and global head of the Aladdin business.

With the acquisition of eFront SA in May 2019, BlackRock expanded Aladdin's coverage to include private market investments to provide a total portfolio view, Mr. Nair said.

Pilot users now are testing the functionality of Aladdin's integrated public and private markets analytical capabilities and a full rollout is planned for later this year, Mr. Nair said.

BlackRock's Aladdin platform also is being used by other companies to boost their technological capabilities. Chicago-based Northern Trust Corp. announced on May 28 that it partnered with BlackRock to connect its fund accounting, fund administration, asset servicing and middle-office capabilities to the Aladdin platform, "creating greater connectivity between asset manager and asset service."

BlackRock currently has 240 Aladdin institutional users, which includes money managers.

Aladdin also helped BlackRock in its transition from a company operating in 91 offices in 40 countries to an "almost entirely remote workforce operating in 16,000-plus home offices around the world" as employees relied on the capabilities of the Aladdin platform to perform their jobs, said Robert Goldstein, senior managing director, chief operating officer and head of BlackRock's solutions business, in an email.

BlackRock managed $7.43 trillion as of Dec. 31.

Other money managers agree on the importance of technological adaptation in the industry.

"The COVID-19 crisis accelerated the adoption and advancement of technology in the money management business by five to 10 years," said George Gatch, CEO of J.P. Morgan Asset Management, New York.

He noted the technology expenditures J.P. Morgan made prior to the pandemic ensured the investment management team was ready to effectively manage $2 trillion from home with the support of just a few essential people working in their offices.

In particular, Mr. Gatch said investment in more internet tools and capacity and portfolio management systems enabled the investment team to respond to "the incredible appetite from our investors" for market intelligence, investment insights and opportunities, and information about their portfolios.

He said more than 170,000 clients attended the firm's webinars and conference calls since the coronavirus crisis hit in March.

Mr. Gatch said JPMAM has started talking about a return to work in the firm's offices and resuming in-person meetings between employees and with clients, but said "it's too early to say when we'll resume those. It's not going to happen right away. In the short term, we're relying on less travel and more Zoom meetings."

J.P. Morgan Asset Management's AUM was $1.98 trillion as of Dec. 31.

Not everyone is working from home in the investment industry, as evidenced by Gregory Davis, managing director and CIO of Vanguard Group Inc., who spoke with P&I over the phone from his office in the firm's Malvern, Pa., headquarters.

Mr. Davis admitted that "it's a little bit lonely here" since social distancing is required for him and the few other employees in the office, including traders, who also are classified as essential as he is. Vanguard's distributed work model requires that essential employees work in main offices or disaster recovery hot spots in the U.S., the U.K. and Australia. Mr. Davis said essential employees are based in these locations because they are much better equipped to deal with power outages, natural disasters and other issues that might adversely impact investment and administrative activities than employees' home offices likely are.

Like its closest competitors, Vanguard leverages technology firmwide across operations, relying on BlackRock's Aladdin platform for its fixed-income portfolios and an in-house developed system for equities, Mr. Davis said.

Technology is "the critical linchpin to manage risk and complexity efficiently" and the investment side of the business has focused on its development, Mr. Davis said.

For example, Vanguard established an internal investment management financial technology strategy group four years ago and has been successful in helping investment teams leverage technology to improve performance and reduce risk, Mr. Davis said.

Vanguard's partnership with the Center for Research in Security Prices at the University of Chicago's Booth School of Business helped to create a way to use blockchain technology to instantly move index data to market participants from index providers on Symbiont.io Inc.'s decentralized database.

Vanguard also is working with new tech firm rollouts for a variety of purposes, including improving the efficiency of capital markets through technology that supports new issuances, Mr. Davis said.

Mr. Davis said Vanguard continues to evaluate the COVID-19 situation and hasn't set a date for employees to return to their offices.

Vanguard managed $6.15 trillion as of Dec. 31.

As severe as the impact of COVID-19 on global markets has been, "the crisis won't have a devastating, long-term effect on the investment industry, which provides a needed service for investors," said Greenwich Associates' Mr. McCollum.

Some of the changes in the asset management business resulting from the impact of the coronavirus likely will be a strong move into outsourced CIO strategies as boards of trustees of smaller pension funds in the $1 billion to $5 billion AUM range throw in the towel on managing their own portfolios, Mr. McCollum said.

BlackRock and other managers will increase their focus on sustainable investment approaches and environmental, social and governance strategies and net inflows likely will rise, Mr. McCollum said, noting "the experience of COVID-19 is likely to push managers and asset owners to think more carefully about ESG, especially the social element."

Investment opportunities that managers, including PGIM Inc., Newark, N.J., intend to exploit include illiquid and distressed assets, said COO Taimur Hyat.

PGIM managed $1.3 trillion of parent company Prudential Financial Inc.'s $1.55 trillion as of Dec. 31.

Fidelity Investments Inc., Boston, also is launching a distressed-debt strategy as well as new systematic and quantitative strategies that are outcome-oriented and may work well for an ESG approach, said Bart A. Grenier, Fidelity's head of asset management.

Fidelity managed a total of $3.04 trillion as of Dec. 31.