Like many other industries worldwide, the coronavirus pandemic has had a significant impact on SA’s asset management industry, accelerating some of the existing trends already in motion and introducing new challenges to business models and technological capabilities, as well as some interesting opportunities.
Among these have been the rapid implementation of advanced technologies, provision of enhanced communications and client services in a virtual environment, greater globalisation leading to more competition, and the increasing importance of environmental, social and governance (ESG) issues.
Though many local managers such as Prudential have navigated the crisis successfully, it has shown us that we will need to be more adaptable than before. This while also maintaining a stable company culture and operational base, and delivering consistently excellent client services and investment returns.
Among the most evident developments over the past year has been an increase in the willingness of investors to use online channels to engage with their advisers or asset managers, educating themselves on the implications of the pandemic on their investments.
They have also shown greater willingness to use interactive online tools, and direct communication with product providers. We see this as a positive development, as individual investors have taken on more responsibility for their own money and securing their own futures.
Asset managers have responded by implementing enhanced online processing, ramped-up electronic client service capabilities and an increasing use of the latest technology, such as artificial intelligence (AI) and chatbots, to help meet client demand and improve their online experience. Those companies without sufficient resources and skills to exploit new technologies for client engagement and data-mining (and deploy all of this while operating largely in a work-from-home environment) are being left behind.
Offshore capabilities
The coronavirus crisis also added urgency to the already strong and growing investor demand for offshore investments and the most efficient ways to access them. This, and the internationalisation of asset managers, has accelerated our local industry’s globalisation. Though this trend started long before the pandemic, there is greater resiliency among SA asset managers associated with global groups.
Prudential has had M&G Investments as a major global shareholder since our founding in 1994, but in more recent years some larger SA managers without the requisite offshore capabilities have partnered with international firms to access global expertise. Others have focused on building offshore investment capabilities themselves.
Competition across the industry, even in a small market such as SA, has become truly global, with scale (the more assets under management the better) an increasing necessity in helping reduce operating costs even further. Indeed, in the past year the local industry has seen many small asset management boutiques closing down or consolidating, having become operationally unviable on reduced asset bases.
There are big advantages to globalisation for a company, such as those in Prudential’s own close ties to M&G Investments. We are on an accelerated path to becoming more integrated with M&G Investments, in terms of ownership and operations, recognising the enormous benefits of sharing in even more of their global expertise.
Being listed in London, they must grapple with the higher costs and complications of complying with the latest industry regulations, changing standards for financial advisers, cost pressures from clients, and the development of new global investment opportunities for clients, to name only a few issues, before they reach SA shores. This gives us an indication of the future of our own industry and makes us more prepared for change when it happens.
Equally, there are the more obvious advantages of accessing new technologies through enhanced purchasing power, sharing global investment expertise with specialists based offshore, and employing the best governance and compliance practices.
More importantly for investors, globalisation can result in better investment results through improved portfolio diversification, risk management and access to new investment opportunities through cutting-edge technologies. For example, while we have been using machine-learning technology and artificial intelligence (AI) successfully in managing the Prudential Global Equity Fund for more than five years now, the pandemic has accelerated investors’ acceptance of this technology as it becomes better understood.
Investing around ESG factors and sustainability has also become much more front-of-mind for clients. In line with their greater personal involvement in how their money is invested, investors are demanding investments that do no harm, and improve ESG issues in the companies, industries and communities in which they are invested.
This attitude is perfectly aligned with Prudential’s own long-held approach in managing clients’ money, being active custodians of their savings not only in security selection but also ensuring we are involved in company oversight and driving better outcomes for our clients, as well as a better future for all of us.
• Hugo is chief client & distribution officer at Prudential Investment Managers.
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