Given the devastating economic and financial impact of COVID-19, it’s unsurprising that the investment management space has run into obstacles.
Q1 was extraordinarily volatile, and performance was inconsistent across this space. March saw many industry professionals responding to the pandemic’s severe impact on its workforce and business continuity.
Before going further, there’s a need for some further context:
In 2019, before COVID-19 reared its ugly head, those within the industry found themselves running into proverbial brick walls. The returns were comparatively lacking, as were the net of fees, relative to benchmarks.
Furthermore, in January, when the pandemic’s realities hadn’t yet set in, the trend mentioned above seemed as though it would continue.
With circumstances trending downward, the pandemic only threw fuel on the fire.
As a result, investment managers experienced something of a wake-up call. They’ve realized the need to emerge from the pandemic stronger than before. This way, the framework would be in place to be adaptable during these turbulent, unpredictable times.
How Can Investment Managers Adapt to the Unknown?
The current and foreseeable landscape will likely continue on a volatile path.
Investment managers’ roles revolve around providing value to clients and employers. They must seize this opportunity to manage risk and generate alpha amid chaos.
It appears there are three pathways to success for investment managers in the “new normal:”
- Pinpointing profitable opportunities despite the disarray.
- Keeping everything steady throughout the turmoil.
- Combining both of the above strategies.
Garnering the insights to generate and execute insightful investment strategies won’t be a cakewalk during these unprecedented times.
Managers can’t afford to get in their own way when providing timely insights during such a chaotic period. More specifically, failing to shift toward a digitized approach will only serve to hold these professionals back.
Whereas embracing digital capabilities will allow investment managers to bolster organizational decisions and client communications.
What’s the Best Use of Digital Capabilities for Investment Managers?
There are some misconceptions when people hear about “going digital” in all manners of industry.
Namely, because these technologies are so impressive, some believe that related platforms do all the work. That couldn’t be further from the truth.
Instead, fully leveraging digital capabilities means positioning them as tools to help managers implement investment strategies. There’s still the need for the people involved to generate insights and use their judgment to implement the most successful solutions.
Adapting to Market Volatility
Market volatility is currently the most elevated it’s been since 2008.
The market’s never-ending ebbs and flows necessitate an operational framework to keep up with that rapid speed. Meaning that managers require real-time information, so they can pivot when needed and create insightful contingency plans.
Some managers might be more focused on long-term strategies. That doesn’t mitigate the need to pivot and be adaptable. Real-time information will positively serve big-picture plans when quick strategic shifts occur in the asset class and industry sector level.
One way to leverage digital capabilities is through sell-side analyst research reports with alternative data.
On top of that is something called “nowcasting,” which is another word for real-time. Through these various mechanisms, it’s possible to receive daily reports about internet commerce, internet trade, and electronic news, for example. From there, this information can be analyzed and communicated to the necessary parties.
Investment professionals should work alongside data scientists with high-quality data and robust analytics to help keep their firms in front of the news cycle.
What Does the Future Look Like?
Many firms will aim to close the gap between the time they leverage information, and when the public receives it.
It will exponentially benefit these organizations to incorporate artificial intelligence (AI) and similar tools to streamline current operations and perform new tasks.
One form of AI, known as NLP/NLG, quantifies data that was once exclusively available as qualitative output (e.g., social media posts and management commentary).
This tool connects commentary and sentiment data with financial and market information.
AI engines draw quantitative insights about the validity and potential market impact in real-time.
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