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Today New City Initiative is comprised of 51 leading independent asset management firms from the UK and the Continent, managing approximately £400 billion and employing several thousand people.

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Enabling Technology Change at Boutiques

Enabling Technology Change at Boutiques

Advancements in technology bring benefits, but boutique asset managers need to embrace change in a way that is considered and not impetuous. While fin-tech is an exciting premise, fund managers must ensure they do not get overwhelmed by the hype that some of these innovations have generated. This will require asset managers to be engaged on fin-tech matters, but equally pragmatic so as to reduce the risk of wasting money on products that deliver limited or zero value to their businesses and clients.

Finding the right use cases

Fin-tech innovations like Blockchain and AI offer a number of advantages, but asset managers need to be selective about how and where they integrate this technology into their organisations. Firstly, a lot of fin-techs have been established, some of whom are marketing products which are unsuited to the industry’s needs, or that solve a non-existent problem. Such providers need to be avoided.

Furthermore, not all inefficiencies within a business warrant a fin-tech intervention. Existing software providing automation can solve many of the current operational inefficiencies which are present across the industry. Spending money on fin-tech when it is untested and expensive is not a sound business judgement, so boutiques may want to wait until the technology becomes more commoditised and homogenised before adopting it.

Managing risk

The risks posed by innovative technologies to businesses are only now beginning to be understood. As such, human intervention is still necessitated when managing these new technologies. While a lot has been written about robotics removing jobs in the middle and back office, there will still need to be human oversight to check that the data being inserted into these AI programmes is accurate, alongside the trends that are identified by the software in order to spare fund houses from serious losses.

Ensuring technology is future-proofed against embryonic risks is also key. Take Blockchain, for example. Blockchain theoretically protects the data it holds through encryption and cryptography, but concerns are growing about how effective these defences will be as and when quantum computing enters the mainstream.[1] Highly-powerful quantum computers – if exploited by cyber-criminals – could unlock Blockchain’s encryptions thereby

undermining one of the technology’s chief selling points. 

Service provider risk is a serious issue for managers when working with fin-tech firms. While banks are cushioned by balance sheet capital, many fin-techs are reliant on VC or private investor funding, with a limited runway to achieve success. With fin-techs aggressively burning through these cash reserves, many are anticipating a consolidation of providers. As such, managers need to make sure they work with fin-techs which have a long-term strategy and strong balance sheets.

Not disregarding the rules

Regulators have been highly supportive of disruptive technology and are encouraging financial services to innovate, but abuses will not be tolerated. The big tech industry has been left rattled after data mismanagement was exposed at Facebook, and some financial services firms are understandably nervous about whether some of their own big data strategies could incur scrutiny.

As the General Data Protection Regulation (GDPR) becomes law later this year, innovations in big data need to be counterbalanced carefully with clients’ privacy rights, otherwise firms could be on the receiving end of some severe regulatory reproaches.  Adopting a strategy which puts client data at risk of being misused would be a very dangerous approach for any manager to take in the current political environment.

Don’t be afraid of the new competition

While boutiques should not prematurely implement innovative technology without a clear-cut strategy, they cannot afford to ignore the lurking competition which could potentially challenge the industry. The big tech companies are moving into financial services courtesy of open banking rules. Apple and Amazon already facilitate payments, while Facebook has obtained an electronic money license in Ireland.

Many of these big tech providers will also be monitoring developments at Yu’e Bao in China, a subsidiary of Alibaba which now operates one of the biggest money market funds in the world. These firms are undoubtedly identifying ways to tap into asset management to complement their existing services.

For boutiques to succeed in the future, they must be willing to face this new competition head on, and not bury their heads in the sand.  History has shown in many industries that large incumbents can struggle to deal with disruption if they move too slowly and focus on protecting their existing business.  Boutiques are smaller, nimbler and more innovative, giving them an excellent advantage.

 

[1] Global Custodian – Quantum computing threatens Blockchain security