#NewWorldDisorder: WHAT DOES IT MEAN FOR INVESTMENT BOUTIQUES

KEVIN HINTON Director, The Collaborative Exchange

The COVID-19 events unfolding over the past few weeks in financial markets have been of epic proportions and will create a new set of opportunities in which the ‘winners of the future’ will be defined and new characteristics will emerge. In times like these, it is the bold entrepreneurs – perhaps Facebook and Amazon – that will turn adversity into opportunity and a new realm of asset managers will arise.

I do think that there will be asset managers today that will not be around in the next five years. This won’t necessarily be boutiques. It could be, but it could also be large asset managers. No longer will an adviser look at fund managers in the same way. The concept of risk vs return has brought on a whole new meaning and the standard risk metrics will no longer be valid. Advisers and asset allocators will now look brutally at fund managers with a new lens. This lens will now incorporate new principles that were never considered in the past. The old marketing adage that “we have the best investment philosophy, investment process, research methodology and employ the smartest investment talent, Sortino ratios, standard deviations, market drawdowns, etc” will all bring about new risk metrics.

Investment distribution and content dissemination will have to be done in a completely different way with technology playing an ever-increasing role in the way marketing is done. Balance sheets will be weakened throughout all industries and increasing scrutiny will need to be done on every rand that is spent on customer and adviser engagement. Some asset managers already have implemented the capabilities to respond to their customers by the nanosecond. Yet, we see many fund managers that have not adapted the better and more efficient use of technology.

Some large asset managers with big balance sheets and strong cash reserves may prosper and adapt. Some small boutiques may have held up better than their peers during this market decline, as they would have been nimble and flexible to adapt to market conditions.

One thing that we do know, is that the bifurcation between ‘alpha’ and ‘indexation’ will now be accelerated and the #NewWorldDisorder will accentuate a new wave of innovation. In SA, when we have bushfires, the grass always grows back greener – but some trees never survive and are destined to ashes!