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Investment companies need to reimagine for whom and how they create sustainable value

Wednesday, June 05, 2019
Opalesque Industry Update - Only a small proportion of asset managers have measured and actively manage their own culture, according to a research paper by the Thinking Ahead Institute (TAI) entitled The asset manager of tomorrow. The paper suggests that successful firms recognise that culture is central to the attraction and retention of talent, the motivational forces that inspire strong performance and ultimately the creation of value.

Roger Urwin, global head of investment content at the Thinking Ahead Institute, said: "We see culture as a big differentiator in determining the successful asset management firms of the future. But perversely, many firms are so hard-wired to the use of precise measurement that they omit culture altogether in their strategy, treating it as a non-controllable item. The dangers of this are particularly apparent when organisations confront growth and disruptive changes, as these put even effective cultures into reverse. In these situations, it is only with considerable increases in the leadership energy and focus applied to culture that you can maintain its quality and consistency."

The paper makes the case that diversity and inclusion are derived both from a business case and a cultural case. It describes the business case as enhancing the influence of team members from diverse backgrounds to produce deeper cognitive inputs, wider perspectives and better informed decisions. It describes the culture case as building a fairer and better culture that helps with motivation and well-being.

Roger Urwin said: "We believe diversity and inclusion will become a cornerstone of the asset manager culture in the future."

The paper highlights two other attributes of effective culture:

- Cultural embedded in behaviours - leaders actively promote and manage culture, staff actively live out and experience culture
- Culture synchronised with vision and strategy - organisation need clear linkages between these elements.

In addition, the paper asserts that many asset managers are erroneously focusing on short-term, one-year planning and failing to support sustainable long-term value, putting them at serious risk of five- to ten-year existential threats. In the publication, the Institute argues that many asset managers have become distracted by short-term pressures and are failing to address the sustainability and competitive edge of their businesses, including undervaluing the pivotal role strong culture can play.

The paper also points to disruptions that pose the most challenge and opportunity for the investment industry. The biggest disruptions are: margin and growth headwinds for investment firms; data, technology and artificial intelligence evolution; changes to the industry value chain configuration through employing new strategic relationship models; and new fee models and pressures.

Roger Urwin said: "Dealing with such disruptions will be most effective through a positive cultural mindset in being prepared for change."

The paper also highlights the increasing need for more asset managers to innovate in multi-asset methods and solutions, implying changes of emphasis, notably with benchmarks-based approaches giving ground to goals-based approaches and strategic asset allocation giving ground to total portfolio approaches.

Roger Urwin said: "Total portfolio thinking is leading a quiet revolution in investment strategy practice through being far more dynamic and goal-oriented. The edge in total portfolio approaches over traditional thinking based on benchmarks is potentially massive. But in most situations, the fulfilment of that potential will require meeting governance, behavioural and cultural challenges as much as the mastery of the technicalities."

The Thinking Ahead Institute was established in January 2015 and is a global not-for-profit investment research and innovation member group made up of engaged institutional asset owners and service providers committed to changing and improving the investment industry for the benefit of the end saver.

Willis Towers Watson is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth.

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