Investment masters urged to embrace fintech movements as survey shows outlook stays flat

Finance masters in Hong Kong have been urged to polish up their soft business skills to deal with an increasingly volatile investment climate worldwide, as well as a looming dearth of skills.

The CFA Institute - the Virginia, US-based global coalition of investment professionals dedicated to furthering the highest standards of practice for the industry - has called for skills to be sharpened in such areas as relationship-building, strategic visioning and ethical behavior as the investment sector comes under growing strain from stringent regulatory burdens and the disruption caused by the advent of financial technology (fintech).

Global fund flows that will determine investment performance are also likely to be impacted by the future pace of US interest-rate hikes this year on the heels of the third US benchmark federal funds rate increase in the past decade. The US has been gradually exiting its quantitative easing policies and calling for an end to the "easy money" era since the US Federal Reserve upped interest rates in December 2015 by 25 basis points for the first time in seven years.

The mainland economy, meanwhile, is also slowing down, while the outcome of upcoming political elections in key European Union member states, including France and Germany, this year, will make global investment markets in the coming years highly susceptible to volatile swings.

On top of macroeconomic changes, the growing proliferation of fintech, rising regulatory compliance requirements and greater client expectations of responsible investment are clouding up the picture.

The CFA Institute, with 146,000 members in 160 countries and territories, including 140,000 charter holders and 147 member societies, warns that the finance industry is at the crossroads, and failure in business transformation may jeopardize the future of enterprises. It's estimated that the world's asset management sector employs some 2 million workers, with assets under management of up to $100 trillion.

A questionnaire, covering 1,145 asset management professionals and complied by the institute late last year, shows that the industry is grappling with business operation pressure, changing client expectations and market disruption by innovative technology.

First and foremost, 63 percent of the respondents expect profit margins at asset management firms to remain flat or contract, while 70 percent see investors increasing their allocations to passive investment vehicles.

Another 84 percent of those interviewed expect the sector to consolidate, with 57 percent anticipating institutional investors will try to reduce costs by insourcing more investment management activities.

"Besides their technical and analytical knowledge in investment, Hong Kong investment managers need to polish up their transferable business skills in interpersonal communication, relationship-building, networking, empathic listening and job assignment," Nick Pollard, the CFA Institute's Asia Pacific managing director, told China Daily.

"Investment industry practitioners must cultivate the mindset that nothing stays the same, so they must adapt to tomorrow's changes," he said.

Global recruitment consultancy Robert Half, which interviewed 100 chief financial officers (CFOs) and finance directors in Hong Kong earlier this year, warned that the city's financial services sector is in the throes of a growing skills shortage.

According to the survey, 34 percent of the CFOs polled said how to manage clients' expectations would have the greatest impact on the financial services sector this year. Other key factors for 2017 cited include technology-driven activities (30 percent), risk management (28 percent) and compliance pressures (27 percent).

"As Hong Kong financial services companies endeavor to become more competitive by addressing the changing consumer landscape and embracing technology, a growing skills gap will certainly be felt in the business community," cautioned Adam Johnston, managing director at Robert Half Hong Kong.

Looking ahead, global audit advisory firms Deloitte advised that investment managers embrace fintech disruption in order to thrive.

"Technology will be an important consideration for companies and regulators as it's creating both opportunities and disruption for the financial services industry. The ever changing environment also requires them to be resilient, invest in data analytics and develop the right governance culture," said Tony Wood, financial services risk and regulatory leader at Deloitte China.

Asset managers not only need to be responsive to new technology, but also be sensitive to the value of impact investing. Hong Kong-based investment managers still have to brush up their communication skills with clients when engaged in impact investing.

The CFA Institute survey further reveals that 73 percent of investment leaders expect environmental, social and governance (ESG) factors to become more influential, while a global survey of 582 institutional investors released by State Street Corporation in March showed that the lack of transparent, standardized, quality data remains a significant barrier in the adoption of ESG strategies by global asset managers.

"There's readiness on the part of institutions and regulators based in Hong Kong and around the Asia Pacific region to engage in ESG investing, but there's still some way to go," Pollard said.

"We've seen significant progress in investors' understanding of ESG in recent years, but we believe further progress can be made to move more investors from awareness to full ESG integration," said Lou Maiuri, executive vice-president and head of State Street Global Exchange and Global Markets businesses.

oswald@chinadailyhk.com

(HK Edition 04/07/2017 page8)