BNY Mellon has released a new paper, 2021 and Beyond: An Investment Process for a New Reality, which focuses on three key trends that will shape the future of the investment industry.
The paper also shares how buy-side leaders can best position their business in the new reality that requires agility and continued innovation to secure optimal and sustainable growth.
One of the key trends is driving a digital-first approach. BNY Mellon explains the development of digital-first strategies and mindsets that align with the acceleration of digitalised economies, and with more open and connected information ecosystems.
BNY Mellon says the need for greater digital evolution became clear very quickly when the pandemic began. For the buy-side, COVID-19 has further thrust the need for technology-led transformation to the foreground.
New communication and workflow systems quickly became the norm and business continuity and cybersecurity practices were tested like never before, according to the paper.
“Yet more work needs to be done to leverage the vast benefits digital can offer. Culture and mindset are some of the most critical elements of successful digital change. And part of that is a recognition of the benefits of taking an open-architecture stance,” says Janelle Prevost, head of strategy and digital for asset servicing, BNY Mellon.
Another key trend that the paper identifies as a factor for shaping the future of the investment industry is data.
The role of data and analytics as a key differentiator in driving solutions, reporting and insights, as well as enhancing efficiency, cutting costs and reducing risk, BNY Mellon highlights.
The paper notes that just as the power of digitisation can transform investment processes and enhance operational efficiency, the power of data can help leaders make better decisions to drive the business.
But the industry is faced with a deluge of data in terms of volume, velocity, and variety. It is explained in the paper that as a result of this, investment management organisations face challenges achieving the promise that data offers.
“Data should be managed as an asset in its own right and treated as a competitive differentiator,” comments Charles Teschner, head of data and analytics solutions, BNY Mellon.
The paper identifies that one area where the challenges and benefits of consistent, readily available data have been on display is in environmental, social and governance (ESG) considerations.
It is explained that the pandemic has created “tremendous interest” around sustainable investing and ESG. But these are frontier data sets: they’re large, they change often, they’re maturing quickly and they need to be brought together.
According to the report, combining customisation with accepted practices and standards, as a result of aggregating rich sets from multiple ESG data sources, is the top choice for the growing number of investors looking to incorporate ESG criteria and preferences into their investment process.
“More transparency, flexibility and responsiveness to investor needs will yield tremendous gains in advancing ESG standards in a post-pandemic world,” explains Corinne Neale, head of business applications, data and analytics solutions, BNY Mellon.
Elsewhere in the report, it is noted that finding alternative sources of return is the third key trend that will shape the future of the investment industry.
BNY Mellon notes the continued lower-for-longer rates environment has accentuated the importance for investors of achieving performance via two approaches: greater investment in alternative asset classes and greater investment in emerging markets.
The paper suggests that the combination of these opportunities bodes well for buy-side institutions seeking higher risk-adjusted returns.
However, the paper also outlines that this requires asset owners and investment managers to review their existing infrastructure and processes for investing in alternatives, and to manage administrative and regulatory challenges within emerging markets.
“We are seeing increasing complexity of fund structures; evergreen with liquidity structures and queuing mechanisms; challenged by dry powder and valuations. In addition, asset owners are seeking greater transparency and larger roles in their private equity portfolios,” comments Mick Murphy, head of alternatives, BNY Mellon.
The report affirms that as buy-side leaders assess how best to respond and reposition themselves amid today’s challenging market environment, it is clear that a new approach is needed to business models, investment strategies and operational processes.
“To future-proof investment processes, asset owners and investment managers must embrace: digital-first strategies and mindsets in all aspects of how they operate; greater use and application of data and analytics to drive insights, enhance efficiency, cut costs and reduce risk; tools and infrastructure to find new sources of return via alternatives and emerging markets.”
“While these trends are pervasive, buy-side institutions — supported by their service providers — are rising to these challenges, and we expect continued innovation in 2021,” the report concludes.
BNY Mellon recently teamed up with Amundi to enhance risk management and optimise investment decision-making for asset managers.
