Author: Joanne Frearson
The pandemic has thrown up numerous challenges to the industry and has brought many of existing problems to light.
The effects of the crisis on the investment industry so far
Since the lockdown began, Birkin explains the industry has been focusing on two areas making sure they can work in a virtual environment and can deal with the fallout caused by the shocks to the market.
The pandemic has seen the market been placed under a tremendous amount of stress and the industry has focused its attention on liquidity problems and financial risk.
“We have seen that both in some of the real asset products, as well as of course in some of the private markets and in some of the listed debt funds,” says Birkin.
“A lot of the fund liquidity issues are from the difficulty of valuing the underlying assets rather than a redemption problem at this point and that valuation of asset being tricky.”
Credit risk has also been increasing. “We see some concern for non-performing loans and some concern for credit risk on the sovereigns and the corporates,” says Birkin. “That is being closely watched by many asset managers.”
How the crisis will accelerate the differentiation between winners and losers
Birkin thinks the pandemic will accelerate changes in the industry that the sector was seeing prior to the crisis.
“The implications for Covid-19 will probably create the trigger for these inflexion points and therefore some of the trends we were seeing before, will be accelerated, some will be reprioritised,” says Birkin.
Before coronavirus emerged, some players in the industry were facing significant pressure from falling revenue margins.
“When we looked at who was winning and who was losing, there were a smaller number of asset managers that were gathering the lion share of net asset flow,” says Birkin.
The volatility of the market has seen the underperformance of some asset managers become more transparent, points out Birkin. To be able to become more efficient, companies will become more focused on making strategic decisions around their business models.
Pre-Covid-19, Birkin explains, there was a shift towards digital transformation, not just of the customer interface with the intermediaries, but a digital transformation throughout the value chain of an asset manager.
“The crisis had accelerated the need for that,” says Birkin. “If you look back in a year’s time, who were the winners from this crisis or maybe those that lost less, it is going to be those that had very strong digital capability to continue to interface with their clients, whether that is in distribution or just communication.”
People management and leadership skills in crisis conditions
Birkin thinks the industry has not undergone this level of strategic change since 2009.
He says: “We recommend that asset managers embark upon a multi-track strategy to continue to access pockets of growth, while pivoting the business into new areas, while embarking upon significant strategic cost transformation.”
However, Birkin warns “the execution of that is going to be complex and that is going to require a level of change that is unprecedented for this industry in the last decade. That is going to require a different type of leadership and management skills to successful navigate that level of change.
“Not everybody is going to be well equipped for that journey, not everyone is going to be successful. “
To find out more about these issues, here are the key areas to watch [timestamp in brackets]:
The effects of the crisis on the investment industry so far [0:00-4:35]
How the crisis will accelerate the differentiation between winners and losers [4:35-8:03]
People management and leadership skills in crisis conditions [8:03-10:02]
This video was recorded over Zoom on Thursday 16th April.