Technology is a new business priority
With its fees under pressure from passive, cheap index-tracking funds, the asset management industry is exploring various ways to deploy technology and data to cut costs and improve the efficiency of both back-office functions as well as on the investment side.
Moreover, a recent report published by Schroders indicates that asset managers investing in data management and new technologies (artificial intelligence, alternative data, cognitive technologies…) will have a competitive edge.
It’s not therefore a surprise if technology has moved center stage in the financial industry. Digital transformation is now a priority for 80% of asset managers, according to a research from Alpha FMC [1]. 61% state that they are “getting organized”, which means having a nascent digital strategy and beginning to allocate budget and resources to foundation level capabilities and technology.
Investment groups have more than doubled their spending on new digital information sets and data scientists in the past two years. According to a survey of investors by AlternativeData.org, asset managers spent last year a total of $373m on data sets and hiring new employees to parse them, up 60% on 2016. It forecasts that overall expenditures will climb to over $1Bn by 2020. These figures are confirmed by Alpha FMC's survey, which estimates at £15m the average annual spend on digital technology by 15 of the world’s largest fund houses.
Some experts put the numbers much higher. Opimas estimates that investors are spending about $5Bn a year on alternative data, and expect the industry to grow 20% annually in the coming years [2].
New profiles and skills are increasingly in demand
These new business priorities are throwing up fresh challenges for fund companies to ensure they have the right people and skills, looking for suitable candidates, hiring young graduates with millennial skill sets, and ramping up efforts to train existing staff. Indeed, if technology, digital media and big data are creating new jobs, they also generate impact on traditional jobs. For example, robo-advisors and D2C platforms require fewer sales distribution jobs and create a ‘new’ profile for sales executive.
A lack of resources or relevant skillsets is seen by 46% of AMs as a primary obstacle to implementing their digital programme (Alpha FMC). To tackle it, traditional fund houses are increasingly following in the footsteps of hedge funds by recruiting specialists to incorporate technologies into their investment processes. Here is a review of main skills and functions.
- Quantitative analysts
J.P. Morgan Asset Management is one of many companies that has stepped up hiring on this front in recent years. “We have been actively recruiting quantitative analysts, and today we are supported by seven of them, up from just two five years ago.” (Hong Kong-based head of JPMAM’s Asia-Pacific equities trading desk).
Principle Partners, a recruitment consultant for regional asset managers, hedge funds and private equity firms, has helped place over 30 people into roles related to quant processes and data analytics in Singapore since the start of 2017.
- Financial engineers
To respond to increasing needs for Liability-driven investment (LDI), Goals-based Financial Planning and risk-budgeting solutions, financial engineers are no longer the prerogative of insurers & wealth managers. Asset managers are also recruiting these profiles, such as ING PWAM which is building a team in the Netherlands or BNP Paribas AM which already have constituted a squad of 20 people based in Paris, Amsterdam and Hong-Kong.
- Data & machine learning scientists
The AlternativeData’s survey showed that over 160 major asset managers [3] employ a total of at least 340 full-time data analysts, scientists and engineers, more than four times the number they employed in 2012.
BlackRock, with its Scientific Active Equity group, and Schroders, with its Data Insights, were among the first global asset managers to set up a dedicated team and to hire data scientists – from a variety of backgrounds and industries – to help their equity analysts and portfolio managers mine insights from big data.
Fidelity Investments is currently recruiting 11 high-level data scientists and engineers, including 3 senior positions (Advanced Analytics Platform; Machine Learning and Big Data; AI, Machine Learning & Predictive Analytics Research).
See article on DigiBook #8 to learn more about Data scientists
- DevOps functions
Because digitalization requires an overhaul of database infrastructure, database administrators are wanted. And a new profile is growing rapidly: DevOps, who are in charge of improving relationships and collaboration between software developers and system operations teams. Bridgewater, BNY Mellon, Prudential, PIMCO – for instance – are currently recruiting DevOps managers and engineers
Connected with database, Data Protection Officer and Information Security Experts ensure that recently introduced technologies and their corresponding business processes comply with the correct legislation and keep customers, systems and business safe.
Chief Digital/Data Officer (CDO)
Digital transformation is impacting the whole company, including adaptation of staff to new technologies. CDOs have a strategic role by helping business to convert to digital, by defining and coordinating digital plan, its investments, implementation and internal processes.
For further information on CDO and Transformers, see article on DigiBook #6
Among new skills targeted by Asset managers, we could also mention web-designers (Invesco), psychologists or behavioral finance specialists (Schroders).
Fight for talent
While the demand for a variety of technology skill sets and talent continues to grow, good candidates are in short supply. The challenge is not only that suitable candidates are scarce; it is also that demand is strong in other industries.
As a consequence, as an expert says “the growing demand for data scientists has sparked an intense battle to find, train and keep people with the technical knowledge to bridge the world of algorithmic data-crunching and finance”.
And competition is worldwide. Principle Partners (South Asia) states that about three quarters of the 20 people in the team were from overseas.
This is partly why, for some companies, technology-related recruitment cost has crept up to 20% of total recruiting expenditures. In US, an entry-level data analyst at an asset manager can expect to earn a basic salary of $80,000 (€65,000) to $100,000, with a head of data being able to demand up to $1m, according to headhunting firm OptionsGroup. And some experts feel that remuneration figures are likely to be as much as 100% lower than the actual salaries in the industry… As a consequence - as a senior advisor to MAN Group indicates - the industry could be characterized by a few global giants and few smaller niche players, which can afford the high costs of building whole teams and applying AI in the investment process.
To deal with this situation, some companies have set up alternative strategies to meet their needs:
- Draw on “center of excellence”: companies are increasingly centralizing their digital talent in hubs that bring like-minded experts together and allow them to design, build, and run new technologies, before bringing them to the entire business. These centers of excellence eliminate the need for hiring multiple specialists within business units and allow for quick ramp-up and faster time to benefit. Moreover, through knowledge-sharing and access to common tools and methodologies, it promotes higher delivery standards, pooling of best practices and, perhaps most critically, builds the governance, leadership and delivery models for quick scale-up throughout the enterprise.
Fidelity Labs, Vanguard innovation Center (see DigiBook article), BlackRock Lab for Artificial Intelligence, Nomura AM’s Innovation Lab (see DigiBook article) are eloquent examples of this approach.
“The AI center will ‘augment’ the asset manager’s teams and help bring the benefits of these technologies to the entirety of the firm and to clients” (BlackRock’s COO)
- Improve skills of their employees: according to Principle Partners, “some firms spend up to nine months to fill their hiring needs [in new technologies]. The next-best thing to do is hire less experienced people and train them”. Mediolanum AM, with its plan of training 20% of its workforce in data science, is one shining example of a voluntary approach. Certifications such as PMP and ITIL are globally recognized qualifications that train candidates in the best practices and techniques for leading technology projects, such as IT service management and system implementation.
- Harness students potential: partnering with universities is an economical way to access to the latest competencies and a talent pool.
Nomura AM has teamed up with Hitotsubashi University Business School’s Financial Strategy Program to develop a financial data science platform that will aid the fund house in product development. Through this project, Nomura AM hopes to develop “a reliable, efficient and transparent analytics platform” that the fund house will use to improve analytical capacity and efficiency in its asset management operations.
Scientists at The City University of New York (CUNY) and Harvard University teamed up with UBS AM to developed a scientific framework to inform investment decisions that make positive contributions to sustainable environmental stewardship and human well-being.
In France, Paris Dauphine University is looking for sponsors to create an academic chair named “Asset Management & new technologies”. It is already working with three Frernch AM (Groupama, CM CIC, OFI) on funds' liability modeling with the help of big data.
Digital transformation is not only a question of technical competencies
Digital transformation produces effects on most of company's functions, and all departments have to be sensitized – and even trained – to the interest and the consequences of new technologies implementation. Speakers of the latest Hackett Group’s Best Practices Conference made things clear: “the best robots and the fanciest predictive analytics tool won’t move the enterprise performance if the finance team isn’t receptive to and adaptive of smart technologies.”
That may explains that 91% of finance organizations expect digital transformation to have a major impact on their service-delivery model, while only 35% said they have the resources and competencies to execute on their digital strategy. It’s imperative that finance closes that gap to realize the benefits of digital transformation.
Author: Pascal Buisson - June 2018
[1] Alpha FMC surveyed 15 of the largest global asset management firms, collectively managing over GBP7 trillion in AUM. Respondents included a mix of CMO’s, Digital Directors, Chief Digital Officers and Technology Leaders. Eight respondents feature in the Investment Association’s top 40 asset managers by AUM and ten feature in the top 200 of IPE’s top 400 global asset manages by AUM. - [2] Opimas : Link1 / Link2 - [3] The list of fund includes major cross-border asset managers such as Fidelity, Schroders, Invesco, Neuberger Berman and T Rowe Price, as well as numerous hedge fund providers
