There are four key challenges that will make pension funds and other asset owners change their business models due to pressures that include technology, globalisation and environment, according to Willis Towers Watson, the pension and investment consultancy.
The firm, through its think-tank the Thinking Ahead Institute which includes pension schemes and asset managers, says the changes in business, investment and operating models will take place over the next five to ten years during a “Great Acceleration” – a term coined at the 2005 Dahlem Conference on the relationship of humans with their environment.
Drivers also include demography and changes in social norms.
The “four big shifts” highlighted in a paper, ‘The asset owner of tomorrow’, are:
- Shifting common approaches to professionalism: Asset owners must shift from a focus on performance and towards professional accomplishments, acknowledging their wider public duties as well as taking a longer-term view of their capital allocation and ownership responsibilities.
- Increased adoption of systems and automation to enhance decision-making: Successful asset owners will become more efficient in handling big data and marshalling computer-based technology alongside human technology in order to create opportunities for networked thinking.
- Using culture and diversity to further evolve the people model: Asset owners have typically not enjoyed a significant history of strong leadership, thereby reducing the competitive advantage an effective culture adds. In particular the need for greater diversity arises including ‘identity diversity’ but going beyond that into ‘cognitive diversity’ as well.
- Rethinking the investment model: To respond effectively to the multiple problems of applying modern investment thinking, investment models must take into account increasingly sophisticated risk and return systems and methods, whilst developing sustainability practices in a more centrally-managed way.
Roger Urwin, global head of investment content at Willis Towers Watson and the principal author of the paper, said: “The size of their assets and their influence make asset owners too important to fail in their mission.”
He added: ““Our analysis is particularly relevant for de-risking funds, which have relatively short investment horizons. The asset owner of tomorrow will have to focus on multiple time horizons.”
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