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So what does the successful asset manager of the future look like? Based on our analysis, the firm will embody several competitive, profoundly differentiated characteristics. First and foremost, the asset manager of the future will need to systematically identify new sources of alpha amid stagnant markets. Purely picking individual securities to gain an edge will be increasingly difficult and ultimately unsustainable, as data is more readily available and markets are far more efficient than in past decades. Instead, the manager will need the acumen to identify specific investment opportunities and allocate capital across multiple asset classes in an agile fashion.

We see the line between liquid and illiquid strategies blurring, allowing more flexibility for investing across public and private assets. A multistrategy platform that allows for both niche investment opportunities and economies of scale can be an effective way to accomplish alpha generation. Simultaneously, we see the hugely disruptive trend of passive, low-cost indexing continuing to gain significant market share among institutional and retail investors. When beta returns are low, investors will focus more on minimizing costs and reducing taxes.

The manager of the future will generate alpha for investors as a thought partner of the client investment team. This closer alignment and better understanding of evolving portfolio-level objectives will likely lead to an increase in co-investment opportunities. These shifts suggest that asset managers and allocators will change their interactions in meaningful ways. Allocators will need to evolve their assessment approach from a siloed, asset-specific model. In the end, we anticipate a more fluid model in which money managers will be more flexible and proactive and allocators will expect more accountability for managers in meeting their investment objectives for given levels of risk.

To address the operational risks that may come with flexibility, allocators will likely demand a more complete governance model. As a result, the asset manager of the future will need to look at risk in an integrated way, not in separate silos. The traditional view segregates risk into market, credit and operational buckets. In the classic organizational chart, the CIO is responsible for market risk, the treasury officer or CFO for counterparty risk and the COO for operational risk. The asset management firm of the future will learn to view risk holistically and pay attention not just to lagging indicators (losses) but to leading indicators (talent retention, investment in infrastructure, succession planning) related to its long-term enterprise health and, ultimately, delivering client results. Risk management will require a deeper understanding of correlation, not only at the strategy level but also at the substrategy level.

Technology is reshaping asset management and will contribute to alpha generation and transparency. The asset manager of the future will use technology to rebalance value from the firm back to investors. Internally, the manager will invest in technology to gain a competitive investment edge: artificial-intelligence and big-data capabilities and more-seamless integration of front- and back-office processes will become the baseline. Externally, technology solutions will pierce the veil of mystery for investors. The black-box hedge fund model is becoming obsolete, with sophisticated investors demanding greater transparency and a deeper understanding of a manager’s investment approach and risk management model. Firms will offer a substantially open book, enabled by sophisticated client-­facing technology to communicate, share and interact with investors. Technology is the biggest impetus for disruption among low-net-worth retail investors, who up until now have been continuously underserved. Technology allows for scalability, accessibility and transparency that will likely level the playing field and provide retail investors with access to new opportunities and the ability to compare those opportunities in an intelligent way. Unexpected players with large investor networks and access to technology will likely enter the retail money management sector with creative business models. For example, Long Game, a San Francisco–based start-up, aims to disrupt the $85 billion lottery industry and convert lottery players into first-time savers and investors.

Cultivating and keeping talent will be critical for success. The investment industry today is very immature in its human capital management. As founders age and investor demographics change, established investment firms risk a talent crisis and will have to rethink how to attract, develop and retain people. We foresee that asset management leadership will professionalize to address these concerns, as has happened in other industries in a similar stage of their life cycles. In particular, we see a need for a CEO who’s fully focused on leadership.

“Purpose-led companies are more likely to have employees who exhibit cohesive behavior and act in the best interest of the company and the investors,” says Jeff Hunter, founder of Westport-­based Talentism and former head of recruiting at hedge fund firm Bridgewater Associates.

As part of this drive to professionalization, we see more self-regulation and the proactive adoption of corporate governance by private investment firms. Leading firms will establish active, engaged executive boards similar to public companies’, demonstrating that decisions are being made thoughtfully, systematically and with investors’ objectives paramount. Of course, this will create better checks and balances on the historically all-powerful founder or cult CIO. We anticipate that this emphasis on effective governance will in turn reshape the due-diligence process. Today’s largely manual and sporadic processes will evolve to include more timely, systematic and ongoing oversight.

Ultimately, the factors shaping our industry will lead to greater transparency, enhanced governance, better talent management and closer alignment of incentives and objectives. But these powerful forces will place a critical premium on a culture of trust. Egregious examples of negligence and outright fraud are far too common in our industry, and investors are getting fed up. The asset manager of the future, in both the retail and institutional spaces, will create and guard the trust of investors at all costs.

Vanguard became one of the most successful disrupters in asset management not only because of its low-cost model but also because of the high level of transparency the firm provides its investors. Like Vanguard, to continually earn and reinforce its clients’ trust, a leading manager of the future must embrace far higher levels of transparency than has been the norm. As opacity recedes, money holders will see who has been working in their best interests.

Still, none of the mechanisms we’ve outlined will work without an internal culture of high integrity. Trust will be by far the biggest competitive advantage of the asset manager of the future. Only if the culture of trust prevails in our industry can we dispel the anger embedded in the question “Where are the customers’ yachts?” •

Katina Stefanova is CIO and CEO of Marto Capital, a New York–based multistrategy asset manager. David Teten is a partner at a New York–based venture capital firm. Brent Beardsley is the Chicago-based global head of the Boston Consulting Group’s wealth and asset management practice. To read the full results of their disruption study, visit disruptinvesting.com.

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