KPMG: five minute expert insight on investment management
, Head of Family Business at KPMG in the Saudi Levant Cluster, and Head of Advisory in the western region of Saudi Arabia, started his career at KPMG in 2014. Chapra’s responsibilities at KPMG include: leading M&A transactions, group restructuring assignments and business valuations, as well as specialised advisory services to the government of Saudi Arabia and leading family businesses. Prior to KPMG, Chapra has held executive positions at Panda Retail Company and the Savola Group.
What is investment management, and what are the benefits of such services?
Investment management is the service provided by professionals in the management of financial assets and investment assets for an entity or an individual based on an agreed upon investment plan.
Professional investment management services offer a wide array of benefits. The primary benefit to investors is that this allows them to obtain advice and recommendations from experts in the field of investment and those that specialise in various types of investment.
More importantly for individual investors, investment management services allow an easier means for the investor to achieve diversification in their investment that matches their risk profile and the desired investment horizon, commonly through the investment in funds.
Furthermore, investment management service providers would typically work to re-balance the investment portfolios based on the latest trends and analysis, thereby taking this burden away from the investor.
What are the challenges of investment management services and when are these types of services beneficial for businesses?
There are costs associated with investments through an investment management service provider - the fee that is required to be paid to the investment manager. This could either be on the basis of a percentage of assets under management and/or a percentage of profits over a specified amount. This implies that if the investor had invested in the same assets by himself, then the investor would generate a higher return.
In addition to the benefits mentioned earlier, engaging with an investment management firm allows businesses to focus their efforts on their core operations. Furthermore, it allows the business to have flexibility when they want to change their investment strategy. A good example of this is the comparison of the performance of the endowments of Yale and Harvard, both of which are amongst the largest university endowments in the world. With a staff of 30, Yale believes in the model of managing investment managers. Harvard, on the other hand, has had staff up to more than 200 individuals and performed a hybrid of selecting its own investments and managing investor managers.
What are the current technology trends and innovations in the sector?
Similar to other industries, technology has become increasingly important to enhance customer experience. This includes digital onboarding of new customers and providing transparent and up-to-date information on the status of the customers’ investments.
Furthermore, there has been a significant rise of robo-advisors which automate investment management through the use of algorithms and thereby making investment management services more accessible for a wider demographic, as well as an increase in availability of exchange traded funds that aim to mirror performance of a particular index. The US ETF market is expected to continue to be largest. However, the European ETF market is projected to have more aggressive growth.
Blockchain is also expected to have a significant impact on investment management services. As an example, Castalone estimated that blockchain could save investment managers approximately US$2.7bn through the use of distributed market infrastructure. Last but not least, artificial intelligence and machine learning are also anticipated to change the way investment managers make investment decisions.
With the world currently facing widespread disruption due to COVID-19, what has been the impact on investor management, and what do you think the future will look like?
COVID-19 has caused significant market volatility, a reduction in deal volume and uncertainty in asset valuation. As a result, many investors have sought to shift towards less risky investments. In contrast, sovereign wealth funds have seen this as an opportunity to acquire equity investments at attractive valuations. COVID-19 has also accelerated digital transformation across all industry segments, thereby warranting renewed diligence on investment recommendations. In particular, equity investments in companies that may have traditionally performed well may not necessarily be a good investment if they fail to digitise their business model and adjust to the new normal.
Similarly, investment management companies should seek an accelerated pace of digitisation for themselves as well. This includes opening and enhancing channels for digital wealth and robo-advisory in addition to leveraging digital to enhance the overall customer experience. It is important to note that the move towards digital will also increase the importance of cybersecurity and ensuring the protection of customer data. In terms of investment strategy, post COVID-19, investment management service providers are likely going to seek out undervalued assets.