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Several geopolitical, economic, and market events have placed stress on the asset management industry, particularly concerning Assets Under Management (AUM) and margins. Asset management firms must address three distinct dimensions to achieve significant growth in AUM and, consequently, margins. These dimensions include the capacity to deliver a best-in-class customer experience, the ability to efficiently scale operations at a low cost, and the innovation of distinctive services to fend off competition.
In reaction to margin challenges brought on by fee reductions, increasing costs, and higher regulatory requirements, asset management companies are looking for ways to enhance their market share. We examine how business leaders are reorienting their strategies to be more customer-centric.
Gen AI can help asset managers in:
By utilizing Gen AI’s capabilities, asset managers can build stronger client relationships, deliver more value, and differentiate themselves in a competitive market while being more customer-centric.
Technical debt is a challenge often faced by investment managers, and unlike financial debt, it can’t be quantified. This issue becomes particularly frustrating when firms rely on outdated technology from vendors who haven’t updated their tools.
As per AIMA, an estimated 80% of technology budgets are devoted to simply ‘keeping the lights on’ and maintaining, repairing, and updating old, legacy technology systems. That means only 20% of technology budgets are allocated to new solutions and functionality that can unlock business development and lower operational risk for asset managers.
Gen AI can facilitate the modernization of legacy systems. It can analyze and refactor outdated or inefficient code into new state-of-the-art languages and frameworks, making it more streamlined and easier to maintain. This helps reduce technical debt by improving code quality and enabling a smoother transition to modern technology, ensuring asset managers can scale operations and operate efficiently and competitively in today’s fast-paced financial landscape.
Asset management firms should prioritize investments in emerging technologies like GenAI and cognitive solutions to enhance both operational efficiency and the overall customer experience.
By analyzing client feedback, performance data, and market benchmarks, Gen AI can suggest improvements to existing products. It can identify areas where products may have become dated and recommend updates or new features to maintain competitiveness and reduce R&D costs.
To hedge against numerous risks, several asset management companies are implementing a proactive approach to risk assessment. Many are planning “what-if” scenarios to be ready for any regulatory changes or market occurrences.
Gen AI can quickly and accurately evaluate enormous amounts of data, assisting asset managers in identifying possible risks and correlations that would not be obvious using conventional approaches.
It can also help ensure compliance with evolving regulations by automating compliance checks and reporting, enabling asset managers to make informed decisions while maintaining the trust and confidence of clients and stakeholders.
CEOs of asset management companies must adopt new ways of thinking and conducting business if they are to succeed over the long term in the face of constant and rapid technological change and changes in the global economy.
We have looked at some of their main worries, including the rapid advancement of technology and innovation, growing international competition from both established and upstart competitors, rising risks, an increasingly complex and shifting regulatory and market environment, and finally, shifting consumer needs and expectations.
In conclusion, asset managers equipped with Gen AI are better poised to navigate challenges and seize opportunities, ultimately serving clients and thriving in this competitive landscape. However, they must be mindful of the ethical, regulatory, and operational considerations that come with the adoption of AI technologies.
References
How AI Is Adding Value In Wealth And Asset Management (forbes.com)
Generative AI models — the risks and potential rewards in business (kpmg.com)
Northern Trust | Wealth Management, Asset Management & Asset Servicing
How asset managers can transform distribution (kpmg.us)
A Guide to Marketing Strategy for Asset Managers – Edgefolio
How GenAI Can Transform Asset Management | BCG
The future of mainframe systems | Deloitte Insights
The Mainstreaming of Alternative Investments (mckinsey.com)
Megatrends and disruptions Consequences for Asset Management | Amundi Research Center
top-concerns-of-asset-management-ceos.pdf (kpmg.com)
Tech debt: The vicious cycle of legacy tech in asset management (aima.org)
About the Author
V Krishnamoorthy
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