In a ground-breaking report, the august consulting firm PWC predicted a 6% growth in Assets under Management (AuM) on a breathtaking base of $100 trillion in 2020.
Asset Managers of all varieties are in aggregate managing amounts in excess of the global GDP, with no signs of slowing down. While some Asset Management firms are technology-forward, others still operate with “traditional” methodologies, unable to conceptualize what the technology-stack of tomorrow should look like in order to simultaneously generate ROI for their clients and avoiding running afoul of regulation, governance, privacy and security mandates.
As AuM grows and the role of the Asset Manager assumes increasing importance, there is a boom in Fintech in general. Deal flow is at a record high and unicorns are minted daily in this exciting space. What confuses the authors, though, is how few of these entrepreneurial efforts are focused on the $100 trillion bogey: AssetTech.
For the purposes of this article, AssetTech can be defined simply as the area of Fintech that is focused on improving the success of Asset Management Companies while concurrently de-risking them.
AssetTech by nature cannot be simplistic. Dealing with OPM (Other People’s Money) is an area that is highly regulated. The signal failures (some by fraud) of the last two decades in this space have also increased scrutiny. Finally, with the scale of monies involved, the capacity to generate consistent returns also requires tech-driven advantage. Overall, the space is ripe for the further intervention of technology.
Of the approximately $100 trillion AuM, about 15% is in “alternatives.”
Unlike public, liquid assets, alternatives can be challenging just as they can be lucrative. They are governed by different rules, have different liquidity profiles, and are subject to geographical constraints as well. To simultaneously manage a complex set of variables requires the right technology platform and a secure and dynamic data infrastructure that allows the system to constantly ingest and absorb new data.
Furthermore, it must help the asset managers themselves make decisions based on the data to drive ROI. Technology must create agility in asset management firms, despite their enormous size. AssetTech must be able to, in Lou Gerstner’s words “teach the elephant to dance.”
In B2B Fintech, platformization and cloud-native architecture is key. The unknown unknowns have to be accounted for. Third-party innovation has to be rewarded and integrated. AssetTech leaders need to come together to create a more modern and forward-looking industry and to ultimately serve the hundreds of millions of people who have entrusted their resources to asset management firms.
$100 trillion is a bogey worth tracking.