The future growth of the asset management industry depends on its ability to move with the times. Successful organisations will capture investor needs and behaviour, and use that insight to change their operating model to one that is customer-centric, rather than product-centric. At FundForum International 2018 in Berlin, four bright young entrepreneurial minds gave us plenty of insight into how this can be achieved.
An industry ripe for change
The investment industry remains a very conservative one. In other sectors it has long been accepted that having a customer-centric approach gives organisations a key competitive advantage. But products built around customer needs, preferences and experiences haven’t always been at the forefront of the minds of those in this industry. Partly, that’s because it’s no mean feat. Doing it properly involves a multidisciplinary approach that includes psychology, sociology, anthropology, and business.
While the asset management industry has started to look afresh at its operating models, the truth is that this has been largely driven by external pressures, including the advent of new players that are providing interesting customer-centric solutions.
Sensing gaps in the market, three of the panel members have built companies from scratch, giving those in Berlin a sharp reminder of the disruptive forces heading their way.
Mind the gap
Spotting a gap in the small loans market, Victoria Van Lennep helped found Lendable, which offers fast turnaround consumer loans of between £1,000-£20,000 over one to five years.
“This type of loan is not so interesting to banks because they failed to create the appropriate technology to underwrite them profitably,” explains Van Lennep. “We thought that if we could build a fully automated underwriting process, we could not only do it profitably but also offer consumers a lower rate.
To date, Lendable has underwritten 50,000 loans totalling £220 million. The business model works by giving investors access to the asset class, which offers 10% unlevered net returns a year, directly though the Lendable platform. Van Lennep outlines why investors like this novel approach:
“It’s fully transparent. They know exactly what they are buying, they can see every investment in each loan and how much they have invested so far on a user-friendly dashboard. We have 100-200 investors and a private relationship with each, and on the consumer side we have thousands of borrowers and we use technology to help that relationship.”
Shaking up the bond markets and building trust
The founders of 9Fin spotted an opportunity within the high yield market. Having experienced the highly disparate nature of bond market reporting, they created a platform powered by AI which can extract key data from a range of different financial documents.
It’s set to save a minimum of 40 minutes per document of analysts’ time, time that can more usefully be used pitching for business.
Meanwhile, blockchain company Qadre seeks to enable businesses to transform their operating models using blockchain technology. They provide a suite of services to help companies onboard trust in the digital world.
Qadre built its own blockchain framework from the ground up, which allows for the integration of legacy systems. They have built products and services on top of that which transform the way companies carry out KYC and onboarding.
Their aim is to solve three key issues for this industry, said Laura Bailey, Chairperson at Qadre; scale, sustainability and trust.
Obstacles to investment
However, getting buy in from the industry isn’t always easy. James Zhang, Private Equity Investment Professional at Sailing Capital said that fintech valuations were pretty high, which put off potential investors in these start-ups.
“When you look at the asset management space as a whole you don’t see a lot of these early stage companies – who come to you and claim that they’re working with all the big investment houses – having a clear path to profitability. At the end of the day, the structural barriers are very real. Asset managers are conservative, they are happy to partner at an early stage for a trial session, but will they end up paying these companies long term to generate value? That’s something that is quite difficult for us to discern, and that’s why we haven’t made a lot of investments into fintech.”
Ewelina Sieradzka, Head of Capital Markets at 9FIN concluded that it was indeed an uphill struggle convincing financial institutions to take on these new technologies, but they ignored them at their peril.
“People in this industry like the idea of AI but they don’t welcome it with open arms, and that’s generally because they don’t the spend time and effort thinking about the future of how to make their business more sustainable.
“They are ignoring the long term benefits of this and how they could go leaps forward.”