Manage your costs, and you’ll maximise your returns. Everybody in the investment industry knows this. The more fees an asset manager charges, the less goes back to the investor. Even where differences in fees appear small, they have a massive impact on returns because of the way investment returns compound over time.
Compare a fund charging 1%, which isn’t out of the ballpark for your traditional funds, with one charging 0.75%, and see the difference over five to 10 years. Sure, this is a simplistic view, but you see where we’re going with this.
But if you take a walk through the virtual offices of most asset managers today, you’ll typically find 20 to 30 people making investment decisions – and hundreds doing administrative functions. Valuations, risk, simple trade processing, basic data capturing. These are all tasks that can – and should – be automated.
We estimate that as up to 3 out of every 4 existing admin roles could be automated, which could cut a significant chunk out of the overhead costs that are passed on to investors, thereby diminishing their returns over time. There is also likely to be an increased administrative burden on investment managers as they ramp up their ESG considerations and reporting standard for investors.
At Differential Capital, our backend is largely automated. In fact, we’re striving to realise hyper-automation by enhancing existing automated processes with the power of artificial intelligence. Hyper-automation allows us the opportunity to automate workloads which could not be achieved with traditional automation solutions. We’re aiming for a business model where most of our manpower is dedicated to tasks that are difficult for machines to replicate. These are the tasks most likely to add value to our clients.
This doesn’t just give us the flexibility and agility to respond to opportunities and challenges as they present themselves. It also means that as we scale, those benefits will be passed directly onto our investors.
Some traditional asset managers will argue that choosing the right exposure is more important than fees. And yes, fund selection does matter. But if we can cut costs without putting our investors at risk, we’ll continue doing exactly that.