The Adaptive Investment Manager

This past September marked the 10-year anniversary of the 2008 financial crisis. The event changed the financial services landscape forever, and the investment management space was no exception. Post-crisis, more was expected of managers as risk management took center stage for investors. New regulations added to the shifting landscape.

Many in the industry struggled and a few shops even closed their doors in the ensuing months and years. The market demand for lower-cost investments added to the list of new hurdles facing investment managers, and margins and management fees came under intense pressure.

Add to this the change in investor expectations driven by a demographic shift. Investors now demand managers to move quickly, offer tailored investment options, and provide advice and data on-demand. They expect a higher level of client service in the form of advanced reporting, more transparent pricing, and more available, knowledgeable staff.

These changing dynamics, while challenging at times, present an opportunity for investment managers to distinguish themselves in a crowded and competitive arena. By adopting a fresh outlook and new capabilities, investment managers can stay ahead of evolving investor desires and thrive in the new investment management economy. This requires an increasingly adaptive approach to market opportunities. Adaptive managers, in our experience, share these characteristics: Flexibility, Scalability, Focus, Speed, and Vision

Flexibility: The call for customization is in full gear. Millennials want socially responsible investments, whereas Baby Boomers value tax sensitivity as they begin thinking about the transition of wealth to their children. The adaptive manager is one who responds to investor preferences and demands with tailored, individualized portfolios. To offer true customization, adaptive investment managers take an existing strategy and tweak holdings to more closely align with the desires of each investor. In many cases, the packaging is also impacted and managers deliver the product via separately managed account, mutual fund and / or ETF.

Scalability: Customization can effectively grow the adaptive manager’s book. Technology enables the application of customization across hundreds (thousands) of accounts. This is particularly true for rules-based customizations to which RPA can be applied. The same is true for ongoing maintenance of customized portfolios with RPA-enabled trade application, strategy adaptations, and ESG overlays. Scalable customization is one way adaptive managers meet client demands while achieving sustainable growth.

Focus: Back-office functions like trade settlement, record maintenance and regulatory compliance can take up a significant portion of a managers’ day. In order to help investors reach their goals and generate the performance that attracts assets, adaptive managers reallocate their time and focus on relationships and on making value-adding investment decisions. Outsourcing providers can provide a flexible operations infrastructure that frees adaptive managers to spend more time on client-facing and revenue-generating tasks.

Speed: Adaptive investment managers bring new products to market quickly and cost effectively in response to changing client preferences and demands. They are free of the constraints traditionally associated with a new product development process because their technology provides the flexibility to evolve and iterate product offerings that leverage their investment expertise. Adaptive managers also rely on scalable operational support, further helping them realize opportunities as they happen.

Vision: The adaptive manager has full visibility to their business, and is nimble in overseeing both the firmwide portfolio and individual investor holdings. This includes performance measurement, trade management, portfolio accounting and operating tasks. Data access becomes a mission-critical capability, used to inform the investment process as well as to communicate with clients.

Adaptive managers engage a new set of capabilities, driven by technology advancements and infrastructure investment. In most cases, this requires an operational environment that allows managers to adapt and react to environmental changes. Whether it be selectively outsourcing back- and middle-office functions, developing an infrastructure for quickly bringing new products to market, or creating a single viewpoint for client and asset data, adaptive managers enable each part of the business to function in unison, adapting and thriving in reaction to – and in anticipation of – investor expectations.