The need of financial services providers to shift client coverage practices and online distribution during Covid-19 are set to endure in a post-pandemic world, changing how investor clients are covered and potentially offering an opportunity for those able to adapt fast enough, according to several fintech specialists.
Fund managers and private bankers say Covid-19 has revolutionised their businesses in a few short months.
“We will look back at 2020 and say it was really Day One of true digital behaviour,” Matthew Dooley, Hong Kong-based founder of advisory firm Connected Thinking and former head of digital for HSBC, told AsianInvestor.
For asset managers, particularly in private markets, “none of those fund groups are used to operating in an environment where they can’t get on a plane and see their investors,” said Richard Williamson, a former director of the CreditEase Fintech Investment Fund.
Eager to invest, a new generation of family office clients are forcing fund managers to address them online rather than through physical meetings. “There is no way for them to get around the fact they’ve had to close their physical operations. They now know that digital is a must-have,” said Dooley.
The opportunity presented by these online interactions, which typically use Zoom and other video connection apps, is beginning to show itself.
“At the moment, with all our investments in different mutual funds, it’s good to sit on a Zoom call with the various portfolio managers and understand their strategies,” said one family office investor who declined to be named.
“What we’re starting to see in the investment space is how persuasive particular commentators are when they are presenting different investment strategies online,” said Dooley.
While financial regulations still require funds to produce product disclosure statements and factsheets, the lessons learned through the pandemic promise richer, more engaging conversations between investors and their advisers.
In the private equity space, Williamson said he knows GPs who have held ‘virtual’ annual meetings for limited partners with some success already.
"The greater travel impact of Covid is in deployment, and specifically for new private markets investments, now that the pipeline of deals commenced pre-Covid has been cleared.
"GPs are working through investment processes remotely, including operational due diligence, but with some degree of caution and trepidation, and less efficiency than for a traditional onsite diligence program.”
Meanwhile, asset owners are gradually easing sometimes onerous requirements for their investment teams to conduct physical due diligence, and allowing them to discuss potential investments virtually instead. In Korea, for example, some pension funds such as Public Officials Benefit Association have been conducting online discussions with potential GPs, while easing previous stipulations that they must visit the managers directly and sometimes even the assets being invested in.
“We selected a highly regarded and well recognised real estate GP in the first half of year who we had never worked with before but had long had contact with them,” Jang Dong-hun, chief investment officer of Poba, told AsianInvestor.
He noted that travel restrictions meant that Poba could not meet the GPs’ representatives directly, so it did its virtual homework instead: “We did a lot of [online] reference checks with our existing global GPs and also domestic LPs who already had a previous relationship with that GP.”
THE NEW DIGITAL INVESTOR
Since Covid has levelled the playing field on client interaction, a new breed of online fund managers has begun making the most of this newly dominant form of communication.
Katrina Cokeng, co-founder and chief executive of Xen Capital, a start-up alternative investment platform headquartered in Singapore, told AsianInvestor, “Covid has really accelerated our business model.
“Investors are much more receptive to doing things digitally in a way that I don’t think would have happened before Covid."
Xen’s business model dispenses with relationship managers and focuses on investing in the technology to allow investors to interact most efficiently online. The firm has a staff of 50 currently, half of whom are technology engineers and product managers.
“The technology exists for people to feel comfortable making $100,000-plus investments completely digitally,” said Cokeng.
One of the challenges Xen faced initially, as an online-only firm, was that fund managers were expected to do in-person roadshows to raise money and clients expected face to face meetings.
“With Covid that paradigm has shifted, so people are getting comfortable with the digital experience.”
Leo Chen, managing director and head of Asia at fund transaction network Calastone, agreed that 2020 marks a turning point. “We have had more fund managers coming to us to help them automate, purely because they have reached a crunch point. If 50% of their people are working from home at any one time, they are now proactively looking at a more sustainable way to run their business.”
Tanmai Sharma, chief executive of Canopy, a B2B data service company for family offices and private banks, said the demand for digitally-led discussions are being driven by single family offices and wealth managers who are digitising faster.
“There has been an upsurge in SFOs being set up and these are invariably second generation wealth inheritors, which creates an increasing push from customers who are very comfortable with the technology,” she told AsianInvestor. “It’s happening much faster now.”
FIRST TIME ONLINE
Sharma and Chen both said that for the first time in their careers, large and traditionally conservative private banks were saying they needed to go to the cloud. “That’s the first step for them to be fully online,” said Sharma.
One example was HSBC, which in July announced a tie-up with Amazon Web Services as part of its digital transformation strategy. In the same month Deutsche Bank and Google Cloud agreed a strategic partnership that aims to create the next generation of technology-based financial products.
Cokeng said there is no turning back post-Covid.
“In every part of financial services, including asset management, there’s no choice but to embrace digital. We’re not going back to the way it was. Asset managers will have to get comfortable with closing deals digitally.”
Richard Morrow contributed to this article.