By Chitra Baskar, COO and Global Head of Funds & Product at Intertrust Group
It wouldn’t be an understatement to say that since March 2020, the world has changed completely, and life has not been the same. 2021, what was expected to be a re-start year, found us stopping and starting with everyday life and business between lockdowns and new Covid-19 variants, further disrupting our way of life.
However, 2022 brings another opportunity to get back on track and build up on the advancements and new ways to conduct business that have been prompted by the pandemic. In this piece, I look at what we can expect from the year in the fund services industry, as well as to what to be aware of in a world of ongoing uncertainties.
Sustainability and ESG – top of the agenda
Both sustainability and ESG are themes that have been slowly but surely rising on wealth and asset managers’ agendas over the past years. Currently, firms are reviewing, evaluating, adapting, and expanding their product range to meet demand. However, in doing so, there has been an increased need for companies to engage with external providers to ensure clear, transparent and correct labelling in order to avoid being involved in greenwashing claims.
For wealth and asset managers, achieving ESG and decarbonisation goals and reporting results in an effective manner is paramount. Companies must ensure they have access to relevant data across their value chain and as an industry, find a standardised way of disclosing performance – in order to be truly held accountable.
Technology, key to long term-success
The difficulties faced in 2020 and 2021 profoundly changed the way we work. Although the FS space was evolving at an adequate rate, it wasn’t moving fast enough before the pandemic hit. Tech driven transformation, AI, cloud technologies, RPA and blockchain will continue to expand capabilities and drive market efficiencies.
During 2022, we expect firms to increase their focus on using new technologies to improve customer outcomes and transform transaction processes. Our recent survey, The Future of Fund Technology, found that 62% of private capital funds are likely to increase automation or introduce new technology over the next 5 years. Our research further highlighted the potential cost of being left behind by not adapting to technology with 68% of funds agreeing that the introduction of new technologies over the next 5 years will be vital to giving their fund a competitive edge.
In an ever-digital world, wealth management clients will increasingly expect to receive a more technology driven service.
Regulatory challenges ahead
Almost a year since Brexit, the UK and EU are clearly pursuing different agendas. In the asset management industry, this means they will need to work through further regulation across both markets. The FCA published a Business Plan in July, indicating it wanted to create a domestic market access regime that addressed cross border risks. Its review will play a crucial role during 2022, addressing how the UK adapts to current and evolving provisions for wealth and asset management.
Alternatives set to continue booming
Alternative investments, primarily private capital firms, have been clear winners since COVID 19 disrupted our lives. With an average growth of around 10% per annum, alternatives are quickly becoming mainstream investments as investors seek to outperform volatile and uncertain equity markets.
With growing retail investor demand, traditionally the playing field of institutional investors, firms have started to engage with the retail investor base, a trend that is expected to continue during 2022.
Increasing levels of outsourcing
Asset and wealth managers have faced a challenging environment with enhanced regulatory requirements in a low interest, volatile environment. Historically, asset managers have used outsourcing to broadly cover middle-office activities, mainly regarding to transaction processing and date related and reporting management.
In the current environment, outsourcing in the industry means focusing on the asset manager’s truly core activities which is where the specific competitive advantage lies. It suggests developing strategic partnerships with providers, effectively enabling the outsourcing of business processes on the entire investment management value chain, from front-office to middle-office and back-office, i.e. from investment management to asset administration.
Many wealth and asset managers will benefit from the expertise of the outsourcing company not only on back-office related issues, but on tech innovation as well as specific local regulation.