9NOVEMBER 2022to landing Tim Berners-Lee inventing the World Wide Web (1989). 170 milliseconds!You finally landed. You're in the present. Take a few seconds and try again to imagine yourself 10 years from now or... about 53 milliseconds after landing. Where are you? What are you doing? How is the world around you?If your reaction is like one of most people I tried this test with, you'll be kind of disoriented, you'd probably feel that 10 years from now, the world around you would be filled with technology like in a Star Trek movie.You just shifted from linear to exponential thinking. And please note that many StarTrek gadgets designed in the 80s are already part of our everyday life; think to the iPad ....And so what?The exponential increase of speed in mankind's evolution was always caused by innovation and technology. Who were the winners in this Darwinian game? Those who deployed superior technology faster. And eventually, the winnerstook it all. Now that you shifted from linear to exponential thinking, how would the next 53 milliseconds of the Investment Management industry look like? Still, a difficult question to answer, and we, as humans, are very bad at predicting the future. Every core area of this industry will be deeply impacted though. We've already a few hints.Alpha GenerationIt's the core of the industry, the reason why fees are earned. Some investment managers have delegated alpha generation to Artificial Intelligence. And that's not about quantitative programming of investment algorithms, it's AI finding investment opportunities and executing investment decisions with a very high degree of autonomy. There're already indexes keeping scores of their performance.Many more investment managers are experimenting and implementing hybrid approaches. AI is more often applied to single risk factors and integrated into an else wise traditional investment process. I've experienced myself AI applied to credit risk: predictivity of credit migration is surprising and can anticipate rating agencies downgrades of 12 months on average.Another interesting innovation enabled by technology is the Asset under the Signal model. It's basically the crowd sourcing of portfolio management, where a sophisticated infrastructure builds portfolios by blending trading signals coming from different selected and independent contributors anywhere around the world, tapping into elsewise undiscovered talents (either human or... digital).Operational EfficiencyFee compression is a consolidated trend, and efficiency has become as strategic as ever before. Digital technologies like blockchain and distributed ledgers are shaking the roots of how securities are issued, asset dematerialized, traded, and settled, introducing the premises for a deep review of how the entire securities and derivatives lifecycle management operates. For example, third parties or transfer agents granting settlement won't be needed under the distributed ledger framework. Just think what that means for back offices. And that's not happening too far into the future: institutional players are becoming increasingly active, take for example, the European Investment Bank that is studying its first blockchain bond issuance.Even activities that traditionally are reserved only to humans are now performed by AI. Morningstar, the investment research firm specialized in funds, has deployed robots to write their fund reviews, covering 38'000 funds for about $14 trillion of assets. I dare anyone to discern whether the report commentary was written by a human or by a digital analyst.Investor Service and ManagementAt least once, you've probably landed on a website with real-time support. Have you tried it? Unless it's disclosed, sometimes it's difficult to distinguish whether you're interacting with a person or an AI assistant. This gives such huge scalability to client interaction unimaginable just a few years ago. And even in this case, it's not either human or AI: for investment managers, or their distributors, or both, the hybrid model can be extremely more effective than the two standalones. Finally, very often, the investment manager is acting in a B2B2C distribution model where technology becomes even more powerful as the relationship with the distributor is more structured, and the investment manager can plugin its infrastructure into one of the distributors. These opportunities are still well underdeveloped, and they can unleash huge value as they're win-win-win. Think, for example, using AI for integrated product development and offering.We're just at the beginning. All this happened in the last 20 years and is accelerating at a pace never seen before. What you foresee as the next 10 years, in fact, maybe closer than you think to 53 milliseconds. Welcome to the exponential world! From that point on, events start to accelerate; man learns to build his own shelters, to plant crops, invents a few tools....invents language!
< Page 8 | Page 10 >