If past performance is any indication of the future, investment managers are on track to become bigger, cheaper, and better at managing uncertainty and utilising data to inform and accelerate decision-making, according to a panel session on the asset management firm of the future, at CFA Society Australia’s recent Investment Leader Forum.
Moderated by Impact Investing Australia chair Richard Brandweiner, the panel featured BlackRock Head of Asia Pacific Susan Chan; Omnia Capital Partners chair Mark Lazberger; and Commonwealth Superannuation Corporation chief investment officer Alison Tarditi.
Chan said the enormous volume and speed of information that consumers and firms received and processed today, compared to 10 to 20 years ago, highlighted the accelerating pace of change, which had both positive and negative implications for asset managers.
Managers must adjust their processes to account for the unprecedented speed at which information can travel, irrespective of whether that information is accurate or not, Chan said, citing the swift collapse of Silicon Valley Bank in 2024.
“If you think about the global financial crisis, it’s gone from a few months from the first [bank] going down to, in the case of Silicon Valley Bank, a weekend,” she said.
“When I started in the industry, everything was slower and that’s been the most dramatic change for me.”
Lazberger observed the exponential growth of the asset management industry in recent decades, and the bulging size, scale and influence of individual firms and funds, as a telling indication of what’s to come.
“In the 1990s, two of the largest firms were Wells Fargo, which became BGI, and State Street Global Advisors, which had around US$5 billion under management at the time,” he said.
“The biggest investment managers in Australia back then were insurance companies like AMP and National Mutual, which had around $12 billion to $13 billion.”
“Today, firms like BlackRock manage over US$11 trillion on behalf of clients.”
Prerequisites for success
The panel agreed that the prerequisites for success had changed significantly since the 1990s, not only in terms of assets under management, but the ability to manage a blend of heightened risks, diversity of investment professionals and, increasingly, climate considerations.
CSC’s Tarditi said investment firms needed to be more thoughtful about solving their clients’ strategic goals. This included deeper company engagement to not only gather intel but provide strategic insight, alongside financial capital, to drive business improvements and returns.
“We need to rethink what we mean by active management. Investment management firms have to think about whether [they want to be] Yahoo and focus on advertising, or Google and focus on what their customers want,” she said.
“I just feel as though we’re product-pushing as an industry instead of thinking about the problems we are trying to solve [for members and clients]. The problem for me is that the world is awash with financial capital but what’s missing is strategic capital. So, for example, if you want to extract the illiquidity premium [from an asset], you have to control the asset. You need the right management team because that’s where the value is created. So how do firms bundle financial capital and strategic capital because that’s what businesses need.”
On the subject of listening to investors’ preferences and offering choice, Chan pointed to the launch of BlackRock’s first Bitcoin ETF, which became the fastest-growing ETF to date, reaching over $50 billion in assets within 11 months of its debut. “We evolved because the world changed and our clients’ preferences changed,” she said.
“We decided to get involved, learn more, and contribute to building a controlled ecosystem.”
“With the pace of technology, these trends are coming at us faster than we can absorb, and asset managers have to look at all this disruptive technology and decide to participate and be a disrupter too.”
Biggest single disruptor
Lazberger described the rise of passive investing, including ETFs, as the biggest single disrupter to the market in the past 30 years, placing pressure on active managers to evolve and demonstrate their value.
“Active management will change and there will be a lot more focus placed on investors going forward, and the idiosyncratic return element of the returns series that is produced by managers or asset classes to really determine skill from luck,” he said.
“This is going to enable investors to sharpen their focus on how they allocate their finite budget and construct portfolios. They are going to have greater insights into their portfolios and a lot of that will be through technology.”
For Chan, a major change of the past 30 years has been the globalisation of asset management, creating opportunities for industry collaboration to solve “seismic” issues like retirement outcomes.
“Globalisation has transformed the way we think about how we manage [money]. The problems and issues we face are shared globally,” she said.
“They impact every single country and government.”
Lazberger urged the industry to stop paying lip service to investors on the issue of slashing carbon emissions and, instead, start taking genuine action.
“Looking at the quality of work that’s being done on climate by investment management firms globally, the scorecard is very, very mixed, and so much of the so-called work being done is really about gathering assets,” he said, acknowledging his cynical view.
“We can look to governments but let’s face it, the political processes we have are, in some cases, broken, and if they’re not broken, they are seriously impaired, particularly on this topic. As an industry, we say all the right words but, in terms of where we are now, we’re at a genuine fork in the road.”
Transformational thinking
To support the investment management industry to understand and fully implement net-zero investing, last year the CFA Institute released a landmark paper: Net Zero in the Balance: A guide to transformational thinking, produced by the association’s research and policy centre and authored by WTW’s Roger Urwin.
According to the paper, net-zero investing requires a nuanced and holistic approach that considers the real economy impact of investing in different sectors and companies.
It is much more than simply reducing portfolio emissions by selling high-emitting assets and buying low emitting assets.
Tarditi said the industry had a proven track record of innovation, contributing to the attractiveness of asset management as an energizing career, and it had an opportunity to make a genuine difference.
“The challenge for our industry is to get back to being funders of new, transformative industries and businesses,” she said.
“If we want to have an impact in the real world, outside our portfolios, we have to build something new and additive. If you’re just trading securities to change the climate footprint of your portfolio, it may have no impact or even a detrimental impact on the world.”
