Investment Management Outlook for 2022: Virtual Work, Digitization, ESG Regulation

A new report from Oliver Wyman predicts that asset managers buoyed by record market highs in 2020-2021 may need to prepare for a downshift as interest rates trend higher, targeted fiscal stimulus is retracted, and central backs scale back on asset purchases. The report outlined potential bright spots for the industry, including savings from the virtual work environment and a more digitized business model. Oliver Wyman estimated that a fully virtual asset manager could operate with a ~40% lower cost base. “The experience over the last two years has highlighted that such a model may be closer to reality than to science fiction,” the report said, adding that some firms will “relentlessly digitize, and where it isn’t core to value delivery, outsource every aspect of their business.” On the regulatory front, Oliver Wyman predicted: “Regulation will be become more prescriptive, going as far as introducing a “nutrition label” for ESG products, holding asset managers accountable for delivering their ESG investment promise and value for money.” Deloitte in its Investment Management Outlook for 2022 also sounded the drumbeat for digitization.  “As firms are positioning differently to achieve alpha, the outlook for 2022 is likely to be driven by the quest to have the investment strategies supported by highly advanced digital capabilities.” Deloitte wrote that firms should consider developing and maintaining a talent pool that can execute strategies to achieve their vision. Digital transformation is key to achieving growth Deloitte advised, though it can be difficult to achieve. “More and more firms are choosing the mergers and acquisition (M&A) path to align their investment strategies with advanced digital operations.” For growth opportunities, Deloitte pointed to pension funds in China, which are in the process of outsourcing assets to external investment managers. Cryptocurrency is another potential area for growth for investment management firms, Deloitte noted. “Investment management firms have the opportunity to create novel products by bundling these currencies into funds with different risk and return characteristics.”