Interesting guest post by the Elpis team. This post first appeared here.
The recent PwC’s report Asset & Wealth Management Revolution: Embracing Exponential Change made the headlines of different media outlets: it predicts a doubling of the Assets under Management (AuM) by 2025. From the $84.9 trillion of 2016 and the Assets under Management will hit $145.4 trillion in 2025.
But, besides the astonishing numbers, the report shed a light also on how this impressive numbers will be reached and on who will most likely benefit from the predicted growth of AuMs in the next ten years.
A chapter of the report summarizes the matter and illustrates it very briefly, the title reads: “Digital technologies: do or die.” The report strongly stresses the role of technology in the near future: “Technology advances will drive quantum change across the value chain — including new client acquisition, customisation of investment advice, research and portfolio management, middle and back office processes, distribution and client engagement.”
PwC’s report must sound quite scary for the traditional investment management companies as it stresses the current divide between traditional investment management companies and the FinTech investing companies that are already pushing innovation. FinTech startups that certainly don’t have the issues that come along with the need to re-adjust their business models to new technologies.
Ironically, another PwC’s recent report, The Global FinTech Report 2017seems even more clear about the new landscape that is taking shape: “FinTech startups has increased at a compound annual growth rate (CAGR) of 41% over the last four years, with over US$40 billion in cumulative investment. Cutting-edge FinTech companies and financial innovation are changing the competitive landscape, and are redrawing the lines of the Financial Services industry.”
The general attention of media outlets (see here), was grabbed by the numbers describing the impressive growth to come in AuMs, and that of course cannot be overlooked. But to us, it is here maybe more interesting to focus on the systemic change the PwC’s reports are contributing to outline.
As the Fintech opportunity grows and the liquidity increments, is forecasted that a massive influx of AUM will be allocated to Smart beta and Quantitative fintech funds able to provide steady ROI at a minimum Risk. The asset management industry has been dominated in fact, in an oligopolistic manner, by large banks or financial institutions for ages. They have collected huge amounts of fees while delivering poor performance. This has been done on the back of investors, whom are the real risk takers, and it is even more true in a very low rates environment typical of the last decade. Consequently, they have started being challenged by trading bots which are very cost effective. Over the years, algorithms will become smarter and more efficient, especially with the advent of massive Artificial Intelligence improvements and Blockchain Technologies. They will reduce all these undue expensive management fees down to more acceptable levels and raise performance over the long term. From a broader perspective, quantitative strategies have gained exponential interests for the last years. As an example, the graph below shows the growth in assets under management for systematic strategies called Smart Beta (black plain line), which are strategies of relative low intelligence, yet exponential interest by traditional investors:
As a cutting-edge financial FinTech startup, at Elpis we are not surprised about these numbers and regarding the emphasis the market put on technologies like Artificial Intelligence and the blockchain: they are at the core of our business model.
Actually, we created an AI-based investment system that will provide the investors with strategies that are tailored on their needs. Our trading strategies are already available on traditional assets (futures), but will be operative soon both in the stock market and in the crypto market, thanks to the Crypto-equity ICO Fundraising that has just started on November 1, 2017, making us the first Artificial Intelligence crypto-assets investment fund.
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We are developing and leveraging technologies like Machine Learning and the blockchain, mentioned by the reports, with a clear purpose: maximize profits, minimizing risks and costs. The report says: “How well firms embrace technology will help to determine which prosper in the years ahead.” We don’t have to adjust and force ourselves to “embrace technology”: technology is in the DNA of our company from the very beginning. The development of a technology-based investment system is not just our future: it is our present.
Another interesting finding of the reports lies in this description of a new type of investor: “The millennial generation is wary of wealth managers and it will determine the future. Millennial preferences around convenience (e.g. mobile apps), investment models (e.g. passive and non-traditional investments) and general scepticism about traditional finance will drive change (see taxes sidebar). Even the term ‘wealth management’ may need to be reimagined as millennials reinvent the future to fit their lifestyles, social consciences and goals.”
Again, as an innovative FinTech startup, at Elpis we are already working for investors that are looking for a more effective, transparent and efficient way to invest. Unprecedented levels of transparency and fairness are allowed by technology and we have chosen to use Artificial Intelligence and blockchain precisely in this direction: to give our investors instruments to understand what we are doing with their investments. We are going to use the blockchain to store all the information from our buy/sell operations in order to publicly audit the company for each transaction: we call it Blockchain Public Auditing Ledger (BPAL).
The report also says: “Transparency becomes absolute. Investors and regulators are asking for complete disclosure of costs and fees.” Again, we don’t have to adjust: that’s one of our core values and we are already offering the investors a system that empowers them. Fair fees are just one of the consequences of our technological efficiency. That is the reason why we are developing a system based on Artificial Intelligence, Machine Learning and the blockchain: to cut costs for our investors, offer them successful strategies at fair fees, while still guaranteeing the highest standards of efficiency.
Both PwC’s reports seem clear about a point: a technology-oriented approach is already shaping the new financial landscape and it has the power and the potential to change it for good.
The report on FinTech contains also what seems to be a sinister conclusion for traditional asset management. It sounds both pretty accurate and maybe a candide, chilling verdict-like prediction for traditional asset management companies: “Asset & Wealth Managers (AWMs) are too complacent about disruption to fully take advantage of FinTech developments. They are aware of the disruption in the industry, as 41% believe their customers are already are conducting business with FinTech companies and 60% see wealth management activities at risk of moving to a FinTech company. However, they seem to be following the traditional approach to innovation and focusing on short-term initiatives rather than considering new improvements on the market.”
PwC’s reports are both validating, with well documented findings, a clear path, a trend that can no longer be considered temporary or incidental. Disrupting technologies like AI and blockchain are already shaping a new investing landscape. As a startup leveraging those technologies, at Elpis we are more motivated than ever to keep on working to bring about the revolutionary change that is underway.
Please visit Elpis Investments for more information regarding our company and our trading strategies.
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Please share your comments and opinions with us to keep the conversation moving forward!
Chief Editor of Elpis Investments, The first AI Crypto-Assets Investment Fund: www.elpisinvestments.com, [email protected]
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