Tech and talent: priority number one for official institutions
Since the global financial crisis, there has been an endemic environment of low interest rates and currency fluctuations. The effects of quantitative easing have been broadly felt by institutions across the globe; and have created major challenges for central banks, sovereign wealth funds (SWFs) and government pension funds.
In addition to this, equity market declines at the start of 2016 were partly a reflection of mounting concerns about a generalised economic slowdown in China and its effects on other emerging markets whose economies depend on resource exports. The decline in the price of oil and other commodities has increased uncertainty about the global economic outlook as well as having a fundamental impact on some investors’ resources.
As a result, many official institutions are realising their investment objectives and strategies may have to fundamentally change; systematically diversifying their portfolios and looking at new asset classes with a view to finding higher returns.
However, above all, many are pursuing a more dynamic approach to their investment strategies; many examining cost-effective ways to invest, such as building their own in-house resources or seeking different relationships with external fund managers.
Nimble institutions lead the way
As public sector entities, many official institutions are often subject to certain constraints and may find it difficult to compete with private sector funds in attracting and retaining top-quality staff.
Some also have IT infrastructure and budget restrictions that can curb their ability to quickly invest in the latest technologies.
According to a recent survey we conducted amongst official institutions, a group of institutions were identified as being more responsive to the changing environment, labelled “nimble” institutions.
Those within this group tended to outperform other institutions in the areas associated with success in the new uncertain economic environment, such as sophisticated investment risk management, investing in technology, information management and upgrading skills in key areas; and were more likely to prioritise upgrading talent in key areas of their organisations; and focused on data and analytics as a top area of focus.
Those considered “nimble” tended to invest in information capabilities by addressing existing challenges in data sharing and integrating legacy systems, and invest in technology to enhance operations while managing the risks. They also developed the right talent, built strong teams in areas key to future success, such as: investment, data management and analytics, technology and governance.
This can be seen particularly with SWFs, which have aired strong intentions to hire in key areas. For example, 76% and 72% plan to invest in data & analytics talent and technology retrospectively.
Pension funds had an equally strong focus on building talent in investment as they seek to build their internal teams to provide improved returns and save operating expenses. Pension funds are upgrading risk and compliance staff to a much greater extent than other institution types, reflecting the increased regulation facing their sector.
The volatile economic environment offers both threats and opportunities for official institutions. They will need to build these adaptive skills into their DNA in an attempt to ensure long-term success. Those that demonstrate “nimble” attitudes and behaviour will be more likely to outperform.
By Rod Ringrow, head of central bank and sovereign wealth fund sector, EMEA, State Street