Mega Trends That Are Accelerating Change in Institutional Investing

The institutional investment industry has seen significant change in recent years, and it continues to grow and evolve in multiple ways. The challenge for investment managers and asset owners is to identify and anticipate the changes that may impact their future so that they can solve problems, take advantage of new opportunities, and help shape what is to come.

For investment managers, three key factors have significant implications. The first, the growth of alternative and digital assets, will continue as investors seek diversification, strong returns, and access to a variety of emerging sustainable investment opportunities. The second factor, a more intense focus on achieving cost efficiencies, has increased as industry profitability seems to have decoupled from asset growth and rising interest rates may challenge accepted narratives. The third factor is the influence of data science to shape decision-making. The rise of data analytics is a factor that investment managers are acutely aware of.  Many recognize that adopting data science tools can help them strengthen their investment processes and build insightful portfolio construction.

Asset owners face related factors, particularly in the area of data science. For asset owners, technological innovation has provided opportunities to create a greater alignment of interest between themselves and their managers. Data analytics is enabling allocators, including pension plans, sovereign wealth funds, and other institutional investors, to develop stronger performance measurement tools and access greater transparency. Rather than examining an outcome, asset owners are able to access the decision-making and the process of the outcome and know that their managers are adhering to agreed policies. Another factor shaping the future for asset owners is the fact that they are working collectively in greater numbers to leverage change. They recognize that there is power in numbers, and are coming together and forming consortiums where possible to shift the needle on issues that matter. The third factor is the increasing focus on core values.  Asset owners are mindful of the role that they play in society, and their own impact on the environment and their communities.

There are clear themes which are driving the industry, whether it is a focus on alternative and digital assets, emphasis on managing costs, the growth of data science, the evolution of asset owners coming together to flex their muscles, or an increasing focus on core values. For both asset owners and investment managers, 2022 will be a year of challenges, but also opportunities for growth and development.

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