The rising popularity of bespoke investment portfolios with investors will lead to the creation of more multi-asset solutions, and also propel technological innovation and automation, predict market experts.
The technology behind multi-asset strategies will have to evolve to help asset managers handle the complex information processing and risk management, John Lehner, US-based global head of investment management services (IMS) at State Street Bank, told AsianInvestor.
Multi-asset managers rely on multiple sources to get pricing information of a large variety of asset classes. They then have to verify and validate the accuracy of their prices, including the complex area of derivatives pricing. Fintech can help do a lot of the heavy lifting, he said.
“Many asset managers today don’t have one system that processes all of those [information]. They have different work streams and different operational flows for derivatives, for private securities, for stocks, for bonds, and then for different regions across them….trying to [bring together] them in a real-time basis is very challenging,” Lehner said.
Paul Sandhu, head of investment solutions at Conning, also told AsianInvestor that advances in artificial intelligence, machine learning and algorithmic strategies will change how multi-asset portfolios are constructed and the manner in which their risks and performances are assessed.
He claimed that new technology advances will allow asset managers to slice portfolios across new dimensions, allowing them to identify risks and correlations that are not immediately obvious, and can lead to new types of portfolio.
“We take advantage of artificial intelligence in order to help us identify weakly correlated groups, which allows us to form portfolios with higher level of diversification, which leads to potentially less severe portfolio drawdowns,” Sandhu said.
Adoption is key
However, one key challenge is how fast fund managers can employ the ever-evolving technologies.
Today, the level of automation in the asset management industry in Asia is very low, with many firms struggling to realise its value, said Lehner of State Street.
One reason for this is that many asset managers have legacy technology platforms that are 20 to 30 years old. It's no easy task to match these antiquated systems with recent breakthroughs like cloud technology, large-size data computing, large data storage capabilities.
“The tools and the automation capabilities are here. The firms with all of their legacy platforms and technologies are here [too]. Many of them still have to make investments in connecting the two in order to get the value from it,” said Lehner.
“The radical change is about the adoption of [emerging technologies] in the industry, how quickly they can absorb the change, and how much the regulators are comfortable with the change,” he added.
Sandhu at Conning echoed the opinion, arguing that asset managers' ability to adopt new fintech solutions on a large scale will ultimately dictate whether they are left behind by clients.
“Size is one of the drawbacks," he noted. "Firms that are smaller and more nimble are more able to bring in some of the technologies but firms that are bigger may have a little bit of trouble….because the former traditional infrastructures are so ingrained."
Humans remain relevant
While multi-asset professionals are much sought-after today, companies continue to debate the level of automation they should install, and whether human brains will eventually be replaced by artificial intelligence. For now, it's more of an academic point.
“[AI implementation] needs to have proper control and risk management. You can’t just unleash it in your portfolio and just let it run. There needs to be segments and duties assigned to different people,” said Conning's Sandhu.
It’s hard to see a day in the near future when robots will take over most of the jobs of multi-asset investing, given the complexity of the industry, added Lehner of State Street. Regulators are constantly asking for changes, and there are so many jurisdictions in Asia with different maturities and priorities in business developments, he noted.
“I can’t see replacing people [with computers] yet…I see it’s a partnership of greater efficiency of how we leverage technologies to make [jobs] easier with the people, but I think the two are joined up for the foreseeable future ,” he said.