By Mark Macias
Technology has disrupted so many industries – from music to retail to hotels – that it is almost easier to talk about the few industries that have remained primarily unscathed.
Asset management is one industry that has yet to be disrupted, but change could be approaching both from technology and legislative assaults.
There have been several recent news reports and rumblings that the powerhouse retailers – Amazon, Google and Alibaba – are all researching how to enter the asset management industry. They would be the first direct competition to money managers from a technology perspective.
Over the summer, The Financial Times published a story that detailed how the Chinese e-commerce giant, Alibaba had secured $90 billion in assets from investors. Their goal would be to sell investment strategies and opportunities in the same way Alibaba sells shoes and clothes. Another rumor circling over the last year is that Google commissioned a report to determine how it could enter the asset management business. Any tech company with Google’s resources has to be taken seriously.
In September, I moderated a hedge fund and private equity forum in New York City where leaders from the financial industry came together to discuss emerging trends they are seeing from their insider perspectives.
The founder of one of the country’s largest compliance firms, Michael Minces with Blue River Partners detailed how both technology and Congressional legislation are posing new emerging disruptions to asset management.
Specifically, Minces said cyber security threats and pending legislation to protect funds from hackers pose a huge financial risk to alternative investment funds. He predicted the smaller and medium-sized funds would be hit hardest with the rising expenses. (You can view this panel discussion at the bottom of this article).
Legislative Disruptions with Alternative Assets
In 2013, Congress passed the JOBS Act, which enabled private equity and hedge funds to advertise for the first time.
As the owner of a PR firm that works with hedge funds and private equity groups, I speak with fund managers and financial service firms all the time. I don’t envision hedge funds placing ads in magazines or on TV in the near future, but I do see short-term opportunities to reach retail investors using the media – both traditional and social media.
In the past, hedge funds have been notorious for wanting to remain quietly behind the scenes. Fund managers didn’t want to bring attention to their hedge funds, but that is changing because of multiple fronts that can’t be stopped.
Deloitte recently published a report that reinforces this analysis. Its report, Digital disruption in Wealth Management, details how there are more than 50 Wealth Management start-ups that are going after the Business-to-Consumer investor. (You can see the Deloitte report here).
Add in the threats from Google, Alibaba and Amazon and you can see how the fight to find quality investor leads will inevitably change and put those who don’t evolve out of business.
Many fund managers will continue to attend one-on-one investor conferences – where fund managers are introduced directly to investors – but the smart money managers will reassess their strategy for acquiring new investor clients and learn how to scale their business models.
Because when you look at business from the root, scaling is king. And if you want to be the king-maker, you need to learn how to adapt to your competition before it overtakes you.