Part 2: Implications of megatrends on investment management organizations

Investment professionals will need to effectively balance risk and return. They’ll be tasked with finding capital-efficient investments while potentially increasing portfolio risk in this challenging capital markets environment. Managers will continue to seek to increase exposure to private markets, climbing the value ladder of externally managed, co-investing and direct investment. At the same time, they’ll selectively consider newer frontiers, such as active investing, thematic exchange-traded funds (ETFs), digital assets and inflation-sensitive strategies with high-grade fixed income and real assets. A fracturing world will demand enhanced investment capabilities, such as origination, value creation and risk management, to identify and capture growth and monetize investments in new markets. Leading investment managers will manage risk through enhanced total portfolio management approaches, while ensuring competitive responsible investment strategies.

As the organization’s financial steward, the finance function will need to shift away from transactional accounting activities to business advisory that leverages financial data to generate insights. This will simultaneously deliver business value and targeted technical troubleshooting support. CFOs and their teams will be tasked with facilitating both planned and off-cycle valuation support (particularly in private markets), while developing a fit-for-purpose tax code of conduct and playing a key role in implementing globalization strategies. This will mean enhanced capital allocation and liquidity management rigour. It will also mean more rapid enablement of capabilities needed to enter or exit markets in response to market shifts. The finance function will need to be equipped with a modernized data management model that enables both a single source of truth and real-time analytics, while helping finance professionals adopt emerging technologies and ESG literacy.

The operations team will need to manage complex global operations while driving innovation, efficiency and scale. This will often require working with other senior leaders to rethink the overall operating model for the enterprise or, in some cases, refinement of existing models to enhance certain capabilities. They’ll ultimately need to leverage enhanced technologies to connect front-, middle- and back-office capabilities to help deliver value-added enablement to investors. The COO will continue to build out operational excellence through a balance of responsiveness and a responsible cost management approach, incorporating automation, as well as building out robust responsibility and stakeholder governance. But the COO will also need to ensure operational resiliency and enable horizontal ESG capabilities that connect investing to data to reporting in support of other key functions. They’ll ultimately bridge the challenging multidisciplinary mix of people, process and technology challenges that lie ahead.

Technology teams will enable the flexible, adaptive and secure technology and data practices that underpin operating models of the future and position human capital for success. Technology teams will lead transformation through investment in capabilities, such as cloud computing, integration platforms, artificial intelligence and “as-a-service” technologies that enable real-time data, leveraging a modular approach. There will also be an increased focus on creating partnerships with related startups for access to new technology capabilities. Technology will play a key role in both operationalizing data integration and equipping the workforce with the technical skills to drive output. As technology continues to become a critical productivity lever, leadership must manage the escalating cyber and business continuity risks.

Finally, while transformative forces like climate change and technology disruption are creating challenges for the investment management industry, these forces are also creating new opportunities, particularly in regards to data. Leading investors are shifting to a data-driven enterprise culture, which is helping enhance their ability to identify and monetize investments in new markets, react quickly to market volatility and value shifts, and attract top talent while equipping the workforce of the future. A data-driven approach can help accelerate organizations as they navigate the complex operating environment ahead and deliver on outcomes—turning challenges into opportunities.

How prepared are you?

As investment management organizations rethink their strategic priorities to advance their market positions, they’ll need to answer some fundamental questions:

• Are you prepared to manage 100 years of progress over the next 10 years? Investment managers will need to react to a variety of possible macroeconomic scenarios in an environment of increased market volatility and rapid value shifts. Cloud hyperscalers, fintechs and other new market entrants represent a competitive threat no investor is immune to.
• Are you ready to invest in companies positioned to undertake major tech transformations? Leading investment managers will need a robust strategy to transform their information and technology systems. They’ll also need to understand the role of technology in business strategy and economic progress. This will play a disproportionate role in shaping competitive differentiation and long-term returns going forward.
• Do you understand the implications of these megatrends to maximize long-term returns? Investment managers will need to evaluate the implications of their strategic decisions over a 10-year time horizon. Illustrative examples of trends that will continue to gain momentum in the decade ahead include energy transition, responsible investing, cloud transformation, AI and analytics, emerging markets (e.g. Brazil, India and Sub-Saharan Africa), food security, health and social security system reform and residential housing markets.