Emerging stronger: Investment management operating at the speed of the markets 2.0

By Patrick Henry, Tania Lynn Taylor & Krissy Davis of Deloitte

At investment management firms, the COVID-19 pandemic has revealed areas that could be improved. Learn how active investment managers can use digital and advanced technologies to become more responsive and resilient.

Key findings

  • Active managers should be up to date with market actions and a potentially accelerated asset re-valuation cycle—even more so during a crisis such as this one. Those who are able to effectively manage risk and generate alpha through periods of volatile market swings have an opportunity to demonstrate their value to clients.
  • New digital capabilities can provide timely insight during chaotic periods to support front-office decision-making and client communications.
  • Over the past several months, there has been a notable increase in the number of sell-side analyst research reports that contain “alternative data.” As clients become more comfortable with the role of alternative data in the investment process, more sell-side firms are expected to incorporate alternative data into their analyses.
  • Firms may benefit most from artificial intelligence (AI) and alternative data if leaders think broadly about their implementation and how to strengthen relationships between the IT and securities analysis parts of the organization.
  • Some investment management firms will likely find that adopting natural language processing and generation (NLP/NLG) technologies in their investment process enables them to operate at the speed of the markets even as markets accelerate, allowing them to utilize new types of data and thrive in the “new” normal.

Since February 2020, there has been a dramatic shift in the operating environment of financial markets, with increased volatility, repricing of assets, and transitions of favored asset classes. Uncertainty abounds for investment managers. According to one hypothetical stress scenario, individual managers may have seen assets under management fluctuate by up to one-third in the United States as outflows and valuation changes have affected many during the pandemic.1 Even before the emergence of COVID-19, the situation for investment managers appeared ripe for change. In 2019, most US equity managers were unable to generate excess returns, net of fees, relative to their benchmarks. This year began with little to suggest a break from this trend.2

While some active managers achieved alpha in the first quarter of 2020, performance was mixed. 3 In March, many investment managers spent the bulk of their time responding to the effects of the global pandemic on their workforce and business continuity. A s firms begin the transition from responding to recovering, some are focusing on how to emerge stronger and thrive in the future. Volatility in Q1 2020, coupled with a growing recognition that market swings were happening faster than new valuations were being calculated, may force some active managers to allocate precious resources to focusing on the operating model. In a period of crisis, it may be even more important for active managers to stay up to date with market action and a potentially accelerated asset re-valuation cycle. Many clients expect their investment managers to keep up in fast-moving markets.

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