Getting fit for the future: the new reality of asset management

in Advisory, Audit, Corporate, Financial Services, Industry Insights, KPMG Luxembourg, Regulatory/Compliance, Tax, Technology, 14.09.2020

Changing business and operating models

With the arrival of Covid-19, companies were forced to innovate…fast, finding new ways of getting things done to replace old methods that no longer worked.

There were production and regulatory deadlines to meet. Operating models had to be adapted overnight so people across different supply chains and countries could work from home. New controls and governance processes were put into place to keep both people and data safe.

We saw a number of companies quickly achieve these desired outcomes, even if the journey included plenty of ups and downs in a short time frame. It goes to show that a shared mindset can make innovation happen fast. When we let our old ways of thinking go out the window, we can actually boost the speed of innovation.

We need to make sure that these improved solutions do not get shelved after the pandemic, and we should also preserve the speed of innovation we’ve managed to achieve. These abilities should permanently become part of the new normal.

The CEOs we have spoken to in Luxembourg are well aware of this and are working to make relevant changes within their organizations.

Accelerating transformation and technology upgrades

During the pandemic, the asset management industry has accelerated transformation and updated its technology, literally overnight. What we’ve collectively achieved was indeed tremendous but was largely focused on short-term, day-to-day needs.

Now that we have shown it can be done, we should turn our attention to getting ready for the future. We can apply the same focus, sense of urgency and collective mindset to prepare for longer term needs and ambitions.

To serve the investors of tomorrow, leading asset managers must deliver a richer digital experience, stronger performance, increased value for money and more purposeful products. Most of these cannot be achieved with legacy processes and technologies, which tend to hold us back. The time window to transform and become fit for the future is shrinking every day, with potential disruptors lurking on the horizon. We cannot afford to wait.

In its ambitions for 2025, the Association of the Luxembourg Fund Industry has already specified its objective to drive innovation and digital transformation, so we expect to see more joint initiatives in the future.

Evolving risk, compliance and regulatory change

To manage the new risks and compliance issues emerging from Covid-19’s volatile market environment, the asset management ecosystem has had to react extremely quickly. The collective sense of urgency among asset managers, asset servicers, professionals, fund associations, regulators and legislators to find solutions has worked wonders in providing clarity and transparency during a time of need.

In Luxembourg, we’ve witnessed the high success rate of these joint efforts, which helped increase stability and business certainty despite what was going on around us. We are clearly better together.

While short-term issues have been solved, other emerging risks need to be contained. Cyber risk, for starters.

Regulators have also felt the need for increased real-time monitoring during the pandemic, triggering the execution of their own digital and data transformation and equating to more data-based reporting for regulated entities.

Evaluating the future of work

Working from home was never seriously considered until now. However, post Covid-19, a mix of working from home (WFH) and working from the office (WFO) is definitely part of our new reality.

WFH is one of the biggest innovations resulting from Covid-19, stemming from a primary need to protect the health and safety of staff and our community. Technology was readily available to meet that need, forever changing how we think about the future of work.

Apart from keeping people safe, we saw WFH deliver additional improvements: much lower commuting times, decreased traffic, less pollution and better work-life balance for staff. WFH also decreases the office facilities required, leading to a significant reduction in office rental costs.

While WFH is not for every type of job, it has shown to work quite well in the financial sector, with no real negative impact on productivity. There are, however, new risks around data security and confidentiality that will require ongoing attention in order to establish the right processes. Staff will require some new skill sets to operate optimally in our new reality.

We are convinced that the right mix of WFH and WFO can be a boon to companies, their workforce, the community and the environment.

In Luxembourg, given that a number of workers are cross-border residents, there are additional social security cost implications that kick in beyond a certain number of WFH days. Due to Covid-19, the thresholds have been jointly and temporarily suspended through bilateral agreements. The debate will now turn to allowing a more permanent increase in the number of WFH days than before.

Integrating sustainability goals

While many people initially thought that Covid-19 might impact climate change and environment, social and governance (ESG) initiatives, it has yet to do so. Sustainability goals still need to be integrated across the entire investment value chain and among its stakeholders, from investors to regulators to societies at large.

In the EU, new disclosure rules will come into play in 2021, forcing the industry to rethink and redesign its approach to ESG. Larger asset managers have already embarked on the journey, but they’ll need to find innovative solutions fast that achieve objectives while keeping costs down. Some of these solutions must be industry-wide and probably platform-based to address wider needs, such as availability and access to reliable ESG data.

Being able to innovate with speed is, and will continue to be, a gamechanger in the new reality.