Delegates gathered at this year’s Association of the Luxembourg Fund Industry (ALFI) London Conference. On 3 May, panels in the morning discussed the future of the asset management industry, gathering views from politicians, CEOs, and regulators, while parallel workshops in the afternoon focused on specific topics including, UCITS, private equity, real estate, responsible investing and living and working in Luxembourg: myths and realities.
In one panel session, which included Denise Voss, Maxime Carmignac, Helena Morrissey, and Joanna Munro, it was discussed how the asset management industry is experiencing a set of unprecedented structural shifts.
Elizabeth Stone, UK asset and wealth management leader at PwC, moderated the session and opened with a discussion on the future investor, and how the industry should be reacting to this.
Voss said: “We have to start from the perspective of the future investor, it’s about customer experience for millennials and younger generations.”
She added: “This is why providing financial services for younger generations is a challenge for the asset manager, because I don’t think that is actually what we do, necessarily.”
Millennials will look to access financial services primarily through their Apple iPhones, Voss argued, and so management and fund platforms will have to be easy to access and engaging in order to capture their imagination through digital, technology, platforms, and apps.
Voss predicted a move towards artificial intelligence (AI) and an increasing need for a change of management for some business models with asset management.
Discussions surrounding blockchain, AI and distributed ledger technology (DLT) featured heavily at this year’s conference, as one panellist said that younger generations—the future workforce—have an awareness of the opportunities technology can bring in terms of investment through robotics advice and applications.
Voss added: “I think asset managers have to realise there is vastly less loyalty with this generation so occupation has to constantly be updated. The huge challenge is changing the mind frame of the asset manager customer service.”
In regards with encouraging the nation to invest more and engage with the industry, Morrisey, head of personal investing at Legal and General Investment Management, suggested that whilst technology gives us enabling tools, we unfortunately often assume that people are rational, whereas actually most of us behave on a more emotional level.
Morrissey suggested that another challenge is that the industry tends to concentrate on the what: what to buy, and the industry thinks more about the product rather than explaining things well in terms of emotional engagement.
We now have this ability to focus on the how, but we are still not really cracking down on what it will be to capture the why.
Another panellist predicted that there will be a domination of AI in portfolio management in the future, especially within exchange-traded funds (ETFs).
One panellist questioned whether or not the time will come when AI might replace asset management roles, but stated “it depends whether and when a similarity in capability will be reached, a time when AI can help judge human ability”.
The panel also discussed the emerging theme of environmental, social and corporate governance (ESG) and agreed that firms need experienced members of staff to help them with issues surrounding this.
One panellist said ESG is seen as separate topic to technology within asset management, but she predicted that it will be integrated in to technology moving forward.
Another panellist concluded: “The easy times are over—with ETF and AI, as well as tougher regulation, we are about to go in to a rough patch, only the strong will survive”, she warned.
Meanwhile, on the UCITS panel, one speaker said: “If you don’t innovate in technology you will fall by the wayside.”
The panellist warned the financial service industry that they must hire expert staff and build further expertise in-house in order to survive past 2025.
“Look forward to innovation for your whole organisation, not just certain parts of it. We are in a data-based business, we are still needing to build further expertise, there’s lots of complexity that doesn’t really go away,” the panellist commented in regards to moving forward in asset management.
The panellist continued to say that in terms of assets under management, in order to distribute across different facets, different data formats need support.
The speaker explained that “innovation firms are going to have to have a research and development function,” solely with the future in mind.
Both big and small firms within the industry should have a good team of staff that are solely employed for that reason alone, he added.
Another panellist suggested that back office collection of data needs an increase of due diligence on the same platforms.
He argued that technology is moving fast and so there’s “no single global warehouse” to manage the fast level of quantity of innovation.
One member of the panel concluded that although the industry is currently hindered by regulation, operations to comply with these regulations would become more commoditised; he also stated that there would be more scrutiny on anti-money laundering going forward.
Another panel session, which featured Patrick Laurent and Lawrence Wintermeyer, focused on crypto currencies and their relevance to asset management.
Nasir Zubairi, CEO of Luxembourg House of Financial Technology, moderated the panel, and predicted that, “everything that can be cryptosised will be in the future”.
Zubairi noted that there has been an intense focus on bitcoin in the ISO market recently, and claimed at the moment, 200 to 250 hedge funds are in some way involved in cryptocurrencies within Europe, but Luxembourg does not yet have that same level of hedge funds involved in the market.
Additionally, he stated that Europe is not as advanced as the US and Asia in this space, though in the future he predicted there will be “space to develop”.
He described the slowness of uptake in Luxembourg and the rest of Europe to a “chicken and egg issue”, stating that there is currently a “lack of regulation combined with frightened banks”.
However, he claimed that this could change as soon as regulators give their first guidance on bitcoin, being that bitcoin is, he said, “barely two years old”.
He added: “Things should be moving to the mainstream in asset management. If we’re patient, a lot [of rules for bitcoin] will fall into the regulations we’re going to have in the future.”
In the following panel, one speaker said that technology is bringing easier access to data, but questioned if it was emerging risks.
The panellist expressed concern over whether or not firms are using their application programming interfaces (APIs) effectively. He said: “Are you [asset management firms and financial services] organising yourself towards using API?”
Meanwhile, another speaker predicted that by 2025, investor protection lines of defence through technology will be where they need to be, but he said this would depend on domiciles in data protection and investor protection.
To conclude, touching on Zubairi’s conclusions, key messages, and a reminder of the need for asset management to adapt to the changing world around it and the consumers it ultimately serves, there seems to be one clear prevailing message: technology is here and offers both threat and opportunity.
