Embracing Forecasting Technology Gives Asset Managers A Big Advantage

May 17, 2021 | Financial Industry

In the post-pandemic world, business has moved from mostly toying with new virtual models to full adoption in just 18 months. For example, virtual meetings and remote work were outliers before COVID-19 but are now clearly here to stay, many brick-and-mortar businesses have fully embraced digital, even restaurants have moved menus online and adopted their service models to accommodate a much wider array of dining options.

Change in the asset management world is accelerating at an exponential rate, too. Much like the upheaval brought on by the 2008-2009 Global Financial Crisis (GFC), COVID-19 is serving as the accelerant to ignite a paradigm shift in the way asset managers do business—and technology will play a key role.

Pressure on Profitability

By most accounts, the asset management industry is set for growth, with forecasts predicting robust increases in assets under management (AUM) for the next several years, but that growth will likely be uneven.

According to “The Fourth Industrial Revolution is here—are you ready?,” a report by Deloitte, technology will be the biggest differentiator between businesses in the coming decade. Successful business leaders must harness the full potential of smart technologies to enable holistic decision making and new business models. Those who don’t innovate in this manner risk falling irretrievably behind.

Asset managers have been facing changes to fees structures, product options and regulations for some time. Each of these areas has resulted in squeezed margins that incrementally increases the urgency to achieve new operational efficiencies. Yet, the asset management industry has famously been a technology laggard.

In the present economy, asset managers may have an unprecedented opportunity to embrace the transformative impact of AI-based technology on their business models and to allow innovation to drive their futures.

Transformation Through Technology

Data—lots more of it—is a major driver behind the need for this transformation. Those asset managers that successfully harness data will gain several competitive advantages. However, data is useful only if it can be successfully interpreted and adjustments made, in real time, based on what was learned.

Making Strategic Decisions Using Methodical Revenue Manager Forecasts

Redi2’s new AI-based Revenue Forecast features within Redi2 Revenue Manager™ helps our asset manager clients embrace technology that integrates all areas of their businesses and plays a major role in accurate strategic forecasting, while minimizing challenges.

Our Revenue Manager Forecast model was built to encompass both econometrics and machine learning (ML) techniques. Here are some of its benefits:

• Using customer and supplementary market data already streaming into Redi2 platforms and powered by existing Revenue Manager’s rules library and engines, Redi2 clients can forecast AUM and revenues using methodical approaches.
• Because of our innovative AI-based approach, Revenue Manager forecasts will outperform existing approaches that use “plain-vanilla” extrapolations.
• This improved forecasting ability will help Revenue Manager clients make strategically optimal decisions that help maximize revenue while simultaneously controlling the risks of revenue fluctuations caused by market conditions or fund flows.
• Improved forecasting also assists Redi2 clients in strategically allocating their sales efforts across different accounts with a view toward maximizing marginal returns on sales efforts.
• Redi2 customers are also able to provide improved asset allocation recommendations to their own clients contingent on the respective investment objectives of those clients.
• Additionally, our clients can forecast net flows into selected products based on multivariate time series techniques, and other related techniques, so they can dynamically model the evolutions of the AUMs of these products under different return scenarios for the broad market indices.
• AI-based forecasting allows for selectively modifying any intermediate outputs and assumptions, making the models’ final forecasts align with Redi2 customers’ discretionary judgments.
• Our tool also quantifies the risks of revenue forecasts, which can help suggest an optimal mix across products to maximize forecasted revenues with controlled risk—offering the potential to increase revenues by between 5% to 10%.

While most asset management firms understand they need to invest in advanced technology to drive new, ever more complex business models, making the leap from the familiar to the innovative can be challenging. The post-pandemic environment may present the perfect time for firms to finally embrace the value-add that strategic technology can bring to their businesses.

What’s next?

If you think it is time to upgrade your forecasting and billing processes, our Revenue Manager experts would be happy to give you a guided tour of our software solution. Contact us at info@redi2.com. Redi2 Technologies, Inc. is the pioneer of the Software-as-a-Service (SaaS) delivery model for financial services billing solutions.