DUBLIN, June 18, 2014—Opening the 16th annual Global Funds Conference hosted by the Irish Funds Industry Association (IFIA) in Dublin this morning, BNY Mellon President Karen Peetz took to the stage to stress the importance of innovation in the survival of financial services companies around the world. Below is an extract some of the remarks made by Peetz regarding what she describes as the age of the ‘Global Reset’.
“The world is not the same as it was before the financial crisis. Something fundamental has changed. At BNY Mellon, we call this the age of the ‘Global Reset.’ Part of this Global Reset is fallout from the financial crisis, but even bigger forces are reshaping the markets - the debt overhang in the US and Europe, the rise of middle-class consumers in China and other emerging economies, the growth of new markets, shifts in trading patterns, aging populations, and new technologies that are transforming the speed and transparency of financial data.
“New regulations have been introduced around the world and whilst some of these regulations appear to be helpful and may lead to greater transparency, many add to the time and cost of doing business and others impede market growth, forcing all of us to find new ways to grow our businesses. Post-financial crisis, changes in client behaviour, monetary policy and other drivers can make organic growth harder to come by.
“Financial organisations need to change. Microsoft founder Bill Gates has defined the challenge as innovate or die. I prefer not to paint anything in such stark terms, but innovation is increasingly defining which companies thrive and create new jobs and opportunities for their clients and their employees, and those that don't.
“The case for embracing change in the asset management industry would seem to be unassailable. Active core assets continue to lose share, while alternatives, passives, active specialties, solutions and liability-driven investments are gaining share. That said, despite losing share since the crisis, active core AUM has actually grown in absolute terms. Further, those active core assets remain the bulk of most recurring revenue streams, which is reducing the urgency to change.
“Traditional managers are also asking themselves, do we have the expertise to develop new offerings? Even if we can, will we have the requisite credibility in the marketplace to attract investors? Another concern is investment. Facing rising costs, providers are facing tough choices. Some argue that diverting attention away from traditional offerings will only hasten investors’ migration to other, perhaps less profitable, asset classes.
“I suspect that what tends to hold them back is more primal. It’s fear. Fear of the unknown. Fear of change – both on the part of organisations that are afraid they are not equipped to adapt, and on the part of individuals at all levels who wonder about their own places in the new world order – and whether they will even have one. And perhaps the biggest fear – that of failure. That’s a huge obstacle across the financial services industry. Within financial services, there is an institutional aversion to failure. Whether we’re fund managers or service providers, we’re all in the business of doing everything possible to prevent and minimise risks big and small, given the financial cost.
“Taking fear out of the equation, which is freeing, can allow a company to view errors in judgment much more analytically. And if you can be objective about your mistakes and try to see potential, not just failure, then you can use them as a launching pad for innovation. It seems like an incredibly healthy mindset, and speaks to a culture where people will be more apt to bring forward and test ideas.
“To thrive in the decade ahead, I believe our industry needs to follow the lead of some of the most innovative and agile technology companies in the world. We need to take bolder steps to look, act and think more like those groundbreaking companies. We need to empower people to play a more active role in driving innovation and reward them accordingly. We need to apply our strengths to address emerging market opportunities. And we need to look over our shoulders to see where the next challenge is coming from – because it may not be from the usual suspects. The real question is; what are we waiting for?”
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