The quick answer is that all signs point toward increased growth in assets under management (AUM), revenues and profits over the next 3-4 years. This is driven by demographics, a move into more esoteric asset classes and a burgeoning middle class in emerging markets, particularly Asia.
However, not everyone will benefit from this improved state of affairs. Basic market forces coupled with a smattering of corporate Darwinism dictate that the larger firms will continue to usurp share from less well-equipped competitors. And if that doesn’t work then successful niche firms will be acquired as part of an inexorable wave of consolidation.
Talent and acumen are not enough
Regardless of your company’s size and market share, growth opportunities will elude you if the right operating model and technological infrastructure are not in place. A corollary is Formula 1 auto racing; you can have the best driver and support team, but if your car is substandard then your chances of winning are severely undermined despite whatever competitive advantages you otherwise enjoy.
The same principle holds true in investment management. Most people in the front office are not terribly concerned with the infrastructure underpinning their investment strategies and trading activities (“it’s just supposed to work”); this nonchalance will turn to frustration when they realize that they can’t execute on their growth strategies, for example new market entry, support of a new asset class, integrating an acquired business and so on.
So what can you do about it?
Regardless of what operating model you choose, it is imperative that you start investing now to secure your piece of the growth pie in 3+ years from now. With pressure on fees, one cost control measure after another and the current state of the market this postulation may seem counterintuitive. However, if your company has determined that your IT infrastructure is more of a hindrance than a help to realizing your aspirations (whether current or future), it will take about that long to sort things out.
Once you have decided to make changes to your infrastructure, the sales cycle can be up to a year. And depending on the complexity and scope of the infrastructure change, another 1-2 years may pass before you are fully able to reap the benefits of your new solution. This is why you need to start preparing for growth now.
In summary, you need an infrastructure capable of handling whatever asset classes and markets, with commensurate regulatory obligations, you decide to trade in. Ideally with real time positions and a “single source of the truth” as far as investment data is concerned. At the end of the day, your IT infrastructure either facilitates your growth ambitions or hampers them. If you find yourself in the latter category, the adage “good things come to those who wait” definitely does not apply here.
To read more about growth, check out our recent white paper, Pursuing Growth in Uncertain Times.
To continue the dialogue, either comment below, or connect with me on LinkedIn.
