Paul Smith (SuisseTechPartners): Identifying Opportunities from Crisis
Paul Smith, Strategic Advisor to SuisseTechPartners says market volatility arising from COVID-19 poses questions about the risks and sustainability of globalized markets for Asia-based asset managers. But, by managing risks and being adaptable, they can not only ride out current instability, but position themselves to take advantage of new investment opportunities.
On what are Asian asset managers focusing today?
Our world is undergoing fundamental change as a result of the COVID-19 pandemic. Things won’t return to the way they were. The immediate impact has been to cause considerable market volatility and a reversal of the trend to globalize. This manifests in a flight to quality and a strengthening of the US dollar leaving emerging markets struggling for capital flows. There is no Asian equivalent of the EU. Asia represents 20 separate markets that will increasingly pull in different directions, as they compete to attract scarcer capital. Nowhere more than in Asia, will the future be one where local solutions will be needed and where any manager’s ability to adapt quickly to changing regulations, will be essential. This increasingly competitive and less generic landscape will require people, business models and IT systems to be adaptable in order to thrive. While Asia-based asset managers are exposed to short-term risks, in time the current situation will present new investment opportunities.
“While Asia-based asset managers are exposed to short-term risks, in time the current situation will present new investment opportunities.”
What risks are posed by the current situation?
There has, so far, been little discussion about how managers can cope with compliance issues in the current volatile market environment. Audit firms are certainly addressing it in notes to financial statements and all portfolios are being looked at carefully from a pricing perspective. While public markets remain open, the problems of compliance are containable. However, if markets close then I believe managers are ill-equipped to deal with investor and regulator communications. Other risks that have, so far, not attracted much attention are those posed by illiquid assets. In times of volatility, such as those we are experiencing right now, the pricing and liquidity of assets, such as real estate and private equity, are unknowns. In future, I expect firms will completely reassess their risk frameworks and place greater importance on business operational continuity. Currently, Asian managers’ traditional culture means they don’t prioritize business resumption planning or work-from-home technology. This must change.
How will the future for Asian asset managers unfold?
They will confront constant cost pressures; burgeoning regulation; their clients becoming increasingly sophisticated while, at the same time, products are becoming more commoditised. Asian managers have traditionally worked against the challenging backdrop of multiple, poorly integrated systems that are not agile nor well adapted to the working environment of the future. These managers typically look to their European and US peers and default to buying systems that are well known internationally. They stick to the old adage that says, “no one gets shot for choosing IBM.” They need to address costly and time-consuminglegacy system redundancy by adopting new Fintech solutions to create less reliance on computer centres and more mobility - challenges that technology can meet, but which haven’t been top of their “to-do” lists. As the world becomes increasingly less globalized, Asian managers will need to think more deeply about systems that can adapt to local investment and distribution needs and can be supported locally. By adopting systems that are cloud native, they will be able to improve cost, flexibility and scalability to take full advantage of the new investment opportunities the world’s change in current circumstances offers.