Innovation in Investment Management

Remote working has enhanced the level of focus and investment into technology and digitisation. As we look forward, there is strong recognition among the investment management industry that this movement must not lose momentum. In order to meet changing client requirements; technology has to be an integral part of how investment managers communicate with investors and how the industry needs to engage with the new generation of investors.

A great benefit for UK-based investment managers is that the UK has become a global leader in FinTech. Currently, 2,500 FinTech firms operate from here and a growing number of them are eager to support firms by unlocking the many transformative opportunities within the sector because, unlike banks, investment management has historically been slow to evolve in the tech space.

However, this is clearly changing. In a recent report published by IA Engine and Expand Research (a Boston Consulting Group company) – Innovation in Investment Management – we can see that over the last five years, there is a clear realisation in the industry that technological solutions are key to maintaining a competitive advantage and overcoming the restrictions of legacy infrastructure.

The report finds that leading investment managers are allocating up to 50% of their development budget on new capabilities and the focus is shifting from servers and physical assets to cloud and data enablement. Last year, firms placed these two areas as the second and third (respectively) in terms of their strategic priorities for technology. 

On the operational side of the business, automation and robotics ranked as the most important strategic priorities, driven by the need to continuously improve margins and to allow firms to better respond to regulatory requirements. However, this area of innovation is also one of the costliest.

Investment managers are also increasingly investing in FinTech firms with 2021 seeing a record number of funding rounds (totalling USD 4.5bn) in which investment firms took part. Some medium-to-large investment managers have gone further and have started to act as service providers to other smaller fund managers. This not only helps with revenue but also client retention as they can offer a more customised suite of services rather than just transactional fund management.

It’s clear that investment managers are becoming more engaged and active in the FinTech space but in order to really succeed, firms need to implant technology in their culture across the whole organisation. Other key areas for the industry to embrace in order to fully unlock the opportunities available include:
 

• Truly understanding the problem before coming up with the tech solution and taking care to consider which processes should be delivered internally and which through an external strategic partnership.
   
• Treating innovation as something that can add value to your business.
   
• Creating a progressive culture where internal skillsets and awareness around technology is developed. But also ensuring any partnerships with external firms are welcomed into a friendly environment for innovation.
   
• While working with FinTech firms and start-ups can have risks, as well as rewards, avoiding risks completely can be more harmful in the long-run.

You can read the full report here which gives more insight into the use and opportunities for FinTech in the investment management landscape.