Innovation and Asset Management

Thursday 20 July 2023


Author: Maha Khan Phillips

Marisa Hall is Head of the Thinking Ahead Institute. For CFA UK’s ‘In Conversation Podcast’, Marisa talked to Maha Khan Phillips about what innovation in asset management looks like, and how it is transforming the landscape.

The investment industry is experiencing a period of important innovation, believes Marisa Hall, Head of the Thinking Ahead Institute at Willis Towers Watson. Discussing the theme of innovation during CFA UK’s In Conversation podcast, Marisa talked about the nature of innovation and how it pertains to asset management.

'Steve Jobs described it as putting a ding in the universe. Thomas Edison talks about finding a better way of doing things and going beyond the limits of the possible. The reality is that innovation means different things to different people. For me, it’s not just about creating new products, new ideas, inventions. I think the process of innovation really matters. It’s about being systematic', she said.

Marisa talked about how technology has evolved since the 1970s and 1980s, from the development of integrated circuits, memory chips and processes, to higher computing power, the advent of the Internet, the digital revolution, the development of sensors, the rise of Artificial Intelligence (AI), data, and more.

'To some extent we’ve always lived in innovative times, and I think to some extent this is a bit different. I love the quote from Mark Twain here –  history doesn’t repeat itself, but it does often rhyme,' she said. 

She also pointed out that anyone who thinks that the status quo still exists is 'probably in a bit of denial'. 

Marisa also believes that the asset management industry needs to reposition itself, rethinking its business and operating models, as well as its investment and people models to embrace innovation, with data and AI integrated across the entire value chain. 'To be able to reposition these various models requires strong governance and a considerable shift in mindset, skillset and approach.  These are areas that the Thinking Ahead Institute does a lot of its work with asset managers', she said.

Different Models

Business models which are successfully embracing innovation are thinking about value creation through the lens of which stakeholders are benefitting from it, she said. 'We’ve seen in the industry a widening of the stakeholders considered. Yes, clients, but actually expanding this to other key stakeholders such as employees, wider society and the planet. So the multi-stakeholder model has become really important. You’re thinking about your value creation activities from a more balanced perspective.'

This includes commitments to climate change and net zero, as well as commitments to diversity, equity and inclusion, according to Marisa. 

She believes that the people model is rapidly changing as well. 'We as an industry can only be as good as the professionals within it', she said.

Marisa pointed out that the pandemic has brought hybrid working models to the forefront, something that businesses are still grappling with. Employers want to maintain employee flexibility but also retain their culture and values, and offer critical ‘watercooler moments’ which happen in-person.  'So being able to create those spaces of innovation, where people are able to test ideas and be able to fail and come back and try new ideas is really important', she said. 

On the investment side, data, natural language processing, machine learning and generative AI are all offering innovative solutions. 'Various sources estimate that the asset management industry has nearly tripled its spending on data over the last five years. I mean, that’s phenomenal growth. Innovation is facilitated not only by data, but by also being able to turn that data into decision-useful forms. This is especially necessary for sustainability disclosures where there is already a large number of data providers and executive teams need to be able to interpret their data to describe their financial and real-world outcomes.'

The evolution of data has also enabled further evolution in ESG, for example supporting the development of more green bonds, examining issues like carbon capture, developing new types of indices, and importantly, quantifying climate transition risks, she said.

Total Portfolio Approach (TPA)

Marisa also talked about innovative thinking around investment models, with more investment organisations using a total portfolio approach in their portfolios compared to traditional strategic asset allocation (SAA) models. Total portfolio thinking provides a measure of resilience as risk is considered through multiple lenses, enabling asset owners to be truly innovative. 'Instead of just thinking about the world through the lens of specific asset classes, whether it be equities, credit, private markets and so forth, you’re effectively thinking about your total fund, your total portfolio where every pound or every dollar of capital is used to chase the best ideas, regardless of whether those ideas fit into neat asset class buckets. Our global peer study on TPA shows that investors believe TPA to produce a performance advantage of at least 50-100bps vs SAA models on a like-for-like basis', she said.

She also spent time discussing the rise of data more specifically, and the challenge of navigating through the ‘noise’ that larger data sets bring. 'Data needs to sit within an intelligence spectrum and we call that the data stack. So basically you collect a lot of data, you use various measurements and various indicators, but you need to synthesise that data into useful judgement. You need to move from indicators and measurements to information, to insights to wisdom.'

All of this speaks to the importance of data culture, said Marisa. 'You need to understand which data is material and really valuable and which may be objective but not necessarily useful. So there are a lot of trade-offs in types of understanding, and applying a systems lens to data so that context and provenance is considered.'

Looking to the Future

Marisa believes that AI has the power to truly transform the landscape, but that key questions need to be answered, for example, how AI is being used, what the ethics are around it and how it is governed and managed. 

'We need to work on how to marshal this technology and how to understand the rules around it and what we can, can’t and shouldn’t do', she said.

Regulation will play a part. 'We need guardrails around how we’re able to use this technology and its outputs, which involves a rigorous process. We need to come together as an industry to understand the limits and power of these technologies. And that requires systems leadership. I wouldn’t be from the Thinking Ahead Institute if I didn’t mention the importance of systems leadership. It important to recontextualise systemic problems as shared and so need joint efforts to find solutions. This requires more effort to understand how the investment ecosystem works. It’s that typical adage that the returns we need can only come from a system that works', she said.




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