Accelerated Pace of Business, New Players, Fewer Firms
Institutional investors expect that by 2025, markets and decision-making will be much more rapid, accurate and efficient with 62 percent believing that trading algorithms and sophisticated quantitative models will make markets more efficient and 80 percent believing that blockchain and similar technologies will fundamentally change the industry. The majority of respondents (75 percent) also say it is likely that non-financial technology firms will enter the industry, and those new entrants could cause some traditional firms to merge or be acquired as they compete with start-ups and fintech companies.
Institutions recognize that the competitive landscape will likely also intensify as the investment industry continues to embrace AI. However, some institutions, particularly those in the United States, have not yet allocated resources to these technologies. Approximately one-third of institutions globally are not currently testing or considering how AI and advanced analytics may be useful to their investment process—and that number jumps to 77 percent in the U.S. Many institutional investors expect to rely on AI in the near future for capabilities including: asset allocation (69 percent), performance/risk evaluations (67 percent), and even creating custom portfolios (39 percent).
“The transformation of the investment management industry is within our sights due to expanding data sets, faster computing power and smarter technologies,” said Jeff Mitchell, chief investment officer, Fidelity Institutional Asset Management®. “As investing becomes more transparent and real time, the implications for asset allocation and portfolio construction will be profound. Asset allocations will evolve as client needs become more complex, demanding more sophisticated and dynamic investment solutions. It’s still early days, but predictive analytics will become a significant factor in the industry, so all institutions need to define their strategy.”Evolution of the Investment Workplace
More than half (53 percent) of institutional investors believe that technology will replace traditional investment roles.Yet, many expressed the continued importance of the human connection with the majority of those surveyed (60 percent) believing that AI will augment jobs rather than replace them.
Institutions will continue to value the expertise and insights their investment partners bring to the table, including non-investment perspectives on market psychology, emerging opportunities, strategy and problem-solving. Institutional investors also expect a transformation of the investment workplace as Millennials bring fresh ideas into the work environment, push for social change and move into senior roles.
“When we arrive at the intersection of humans and machines, it’s important to remember what is irreplaceable, and that is relationships,” said Judy Marlinski, president of Fidelity Institutional Asset Management. “Asset managers who provide expertise and oversight will always be valuable to their clients, but they should also recognize that their expertise has to evolve toward leveraging new technologies that can help their clients effectively meet their needs and objectives.”
For additional details on the survey, go to go.fidelity.com/globalsurvey.
About the Survey
Fidelity Institutional Asset Management® conducted the Fidelity Global Institutional Investor Survey of institutional investors in 2018, including 905 investors in 25 countries including pensions, insurance companies and financial institutions. Assets under management represented by respondents totaled more than USD$29 trillion.The surveys were executed in association with Strategic Insight, Inc. in North America and FT Remark, a Division of the Financial Times, in all other regions. CEOs, COOs, CFOs, and CIOs responded to an online questionnaire or telephone inquiry.