Geoff Hodge is Chairman and President of Milestone Group.
- What trends are getting underway that people may not know about but will be important?
A key trend that is getting underway is that of asset allocators and delegated solutions businesses becoming more decerning in understanding the difference between traditional order management system (OMS) led operating model developed in the traditional management world and operating models that understand the nuances and complexities associated with servicing asset allocation clients at scale. It is widely recorded that between 70-80% of investment alpha is now generated by the asset allocation decision with the balance contributed by stock selection and other factors. It is noteworthy that a number of sources, including our 2023 Asset Owner Transformation Report, are reporting that 55% of asset allocators are still undertaking this critical function on spreadsheets. We have observed that this can be the case when an asset allocator pursues a traditional OMS model in the belief that it will service their needs and where spreadsheets were not intended to be part of the current state.
- What industry trends have been prominent but are now fading (or will soon fade)?
The industry trend to rally around new and emerging technologies with the expectation that they will provide a silver bullet or quick fix for industry challenges, has fallen short. We still see many pilot activities that seek to use new technology, that do not convert into meaningful commercial applications. We expect this to lead to more careful consideration of investment in new technologies. In particular, we have seen a flurry of activity around RPA, block chain, and more recently gen AI targeting business problems, where these technologies may not represent the best solution. There is no getting away from the need for business specialists who understand value from client and shareholder perspectives to lead and discern the best use of new technologies and specifically to target them at problems that they uniquely solve as a passport to applying them more broadly in the business.
- What are your expectations for 2024?
In 2024, we expect to see further impact of the global regulatory focus on resilience and cyber risk, in particular, with ongoing dialogue with the market relating to business continuity and specifically back-up arrangements in the event of supply chain outages. In investment markets, this translates directly to an uptick in focus on Back-up net asset values (NAVs) or Contingent NAVs where funds have outsourced providers, and we see this trend extending to fund managers who have retained their fund accounting and middle office operations. This trend is discreet from traditional disaster recovery (DR) arrangements as it is focused on ensuring business continuity during periods of unpredictable events rather than simply outage scenarios that can be predicted and planned for traditional DR approaches.
The interview is available on Traders Magazine here.