Asset management
CEOs confident
despite obstacles

Asset and wealth management leaders optimistic for global growth

Notwithstanding the economic shock caused by COVID-19, the majority of global and Irish CEOs are confident of economic growth in the next 12 months. 75% of AWM CEOs are predicting global economic growth this year which has increased significantly since last year where only 18% of AWM CEOs considered global economic growth a possibility.

This confidence is one of measured optimism and caution rather than bullish prospects of a global economic bounce. It reflects continued uncertainty around the timing of when restrictions will be eased or lifted and how and when many of those across the wider economy currently receiving government support will return to full employment.

However, their concerns are tempered by confidence in their own business' ability to grow in the wake of the shocks that 2020 brought, with 42% of AWM CEOs very confident in their business' ability to grow revenue in the next year. Further, they expect a release of personal savings which are at record highs due to the uncertainty brought on by COVID-19, which will no doubt boost economic growth.

This confidence in growth is consistent with the 'Asset and Wealth Management Revolution: The Power to Shape the Future' report released by PwC in December 2020 which predicts the Global Asset and Wealth Management industry is set to grow by up to 5.6% per annum to 2025 with the Irish industry set to grow by up to 10.76% annually in the same period.

Asset management CEOs bullish on revenue despite headwinds

Despite the global economic impact of COVID-19, the AWM industry has been resilient. CEOs in the industry are bullish about growth in their organisation's revenue in the next 12 months as economies to start to reopen. As governments across the world struggle to manage their debt over the next few years, AWM will play a central role in helping fund the future. They will be the necessary link between private capital and public projects. The introduction of the Investment Limited Partnership (ILP) in Ireland this year is an important step in supporting this funding role.

At the same time, this confidence in growth is tempered by the uncertainty caused by Brexit for financial services firms. Undoubtedly, the UK remains a very important market. But divergence between European and UK regulation and regulatory policies is a concern. In some areas, businesses have to follow similar, but different, rules and regulations. Our AWM Revolution report showed that over 170 AWM and related Fintech firms have chosen Ireland in the last two years as a result of Brexit.

Cyberattacks and regulatory challenges front of mind in AWM

The threat of cyberattacks remains a major concern for asset management CEOs when it comes to growth prospects. In most businesses, the majority of staff continue to work from home. Opportunistic cybercriminals have sought to capitalise on this trend by targeting weak system entry points.

The AWM industry is trusted with institutional and retail money the world over. A significant cyberattack can spook investors who can be quick to move their money to a competitor. If an attack of this nature does occur, it can be very difficult for businesses to recover.

It is clear that more investment is needed in this area to train staff to promote awareness, enhance systems and improve governance. Cybersecurity risk management remains a key area of focus for the Central Bank of Ireland following their thematic inspection of asset management firms in March 2020.

As previously noted, 170 asset management and fintech firms have chosen Ireland as their European base. This is in addition to the companies already established here prior to Brexit. Divergence between European and UK regulation will force companies with operations in both territories to comply with two different regimes. This can be challenging and expensive. AWM CEOs need to invest in smart technology to drive automated solutions for regulatory reporting. They might consider using specialist fintech providers to achieve this. Smart technology solutions are crucial to allow businesses to scale at a time of increased regulation globally.

COVID-19 accelerates push to digital transformation

COVID-19 has accelerated digital transformation across most businesses. But this is only the beginning. Business leaders are acutely aware of the need for more investment in digital. 89% of AWM respondents to our survey said they will invest in this area over the next three years.

Digital transformation involves more than enhancing user interface platforms and IT systems. For it to be successful, businesses must upskill people to maximise the benefits investment in this area can provide. Some businesses will choose to undertake this journey themselves, others will collaborate with special fintech providers to speed up this change.

Like banking, where digital payments are now commonplace, digital distribution of funds and robo advice will continue to become more prominent. Investors are looking to create virtual offerings, including those supporting smartphone devices. This change presents both a threat and opportunity for firms over the next few years.

What is clear, however, is that business owners must act now or face getting left behind.

ESG investment moving centre-stage?

Environmental, Social and Governance (ESG) has become increasingly prominent in the last two years. This has been driven in part by European regulation, and, perhaps more importantly, by changing investor preferences. The change has resulted in capital flows being pushed towards companies with strong ESG credentials.

Getting the right ESG strategy is essential for business owners. But with an increased focus on ESG, it is somewhat surprising that only 24% of asset management CEOs are extremely concerned about climate risk.

The S and the G in ESG have to date garnered the greatest focus of strategic change for businesses. This is perhaps due to the fact that these are the areas where there is more scope to make changes fast, such as diversifying board composition. However, attitudes need to change to ensure environmental initiatives receive the same focus. A substantial catalyst of this change will be investors moving more capital to companies embodying all aspects of ESG. It is crucial, then, that climate change forms part of business strategy.