Ways asset managers can adjust to ‘the new normal’
If nothing else, the coronavirus pandemic has shown capital markets that our environment changes rapidly and that asset managers need to adjust.
In the post-COVID-19 world, it is likely that many large office buildings will not be occupied as big corporate infrastructures change to presentation centers. Barring the names of some Fortune 500 companies, many major office buildings could soon be vacated as the virtual office becomes the new normal. The fear of pandemic-related health concerns may simply supersede an executive’s desire for the big corner office, and presentation skills will supersede current corporate culture.
Just as society has adapted, so too must the asset management industry. Investment managers cannot continue to make portfolio selections using outdated research approaches that result in muted returns. Leveraging big data, machine learning and artificial intelligence will undoubtedly extend stock selection beyond its current capabilities. Good investment decisions made by excellent managers can be enhanced by databases that have removed stock selection biases and perceived norms of stock picking to achieve excess performance.
Clients today seem to seek returns of up to 10% annually. Realistic market returns, however, may still be achieved through passive management and tools that utilize ensemble analytics can provide investors with consistent excess returns over benchmark indexes. Those strategies along with AI approaches may even help deliver consistent alpha.
This pandemic is also bringing about a cultural work revolution. Companies have been forced to adapt and advance their technology of a non-resident workforce. AI and other technologies offer the same opportunities to investment management. Six months ago, Zoom conferences, group FaceTime check-ins and Webex board meetings were rare in the professional workplace. Now they are becoming new norms in the workforce.
The slow advancement of AI into asset management is to be expected, as technology does not have a global health crisis to speed change. However, if investors are paying for alpha in their mutual fund fees, they should receive alpha. Just as workers have found a new way to do their jobs at home, investment managers should learn to accept new technology to improve returns for clients.