Technological Innovation: Shaping the Future of Asset Management

Franklin Templeton

Executive Summary

The global asset management industry has undergone major transformations in recent decades driven by technological innovation. That pace of change is now accelerating. In this paper, we explore how the blockchain and artificial intelligence are shaping the future of the asset management industry. We also summarize key implications for China, its asset management industry, and its asset management regulation.

Part 1: Innovation since the 1980s

Innovations in computing and information technology since the mid-1980s have transformed asset management into an industry characterized by scale economies, which has underpinned the sector’s consolidation. Innovation has also created new products including derivatives, passive index strategies, and the application of MPT to portfolio management.

Part 2: Digital Finance and Artificial Intelligence

Digital finance, including the advent of the blockchain, enable more efficient operations. Digital finance also enables the securitization of new assets, including intellectual property and real estate, potentially opening significant new opportunities for investors and asset holders to diversify their holdings. Applications in artificial intelligence (AI) span many dimensions in the asset management industry, offering promise for scalable bespoke investment solutions tailored to client needs, thereby advancing ‘Goal Oriented Investing’.

Part 3: Implications for China

China is at the forefront of technological innovation, above all in AI. It is also experiencing rapid growth in its asset management industry, which is crucial given the need to diversify domestic wealth holdings and adjust to the country’s demographic transition. Accordingly, China is well positioned to adopt new technologies in asset management.

Part 4: Regulatory Considerations

The foundation upon which asset management rests is fiduciary trust. Yet rapid innovation can be unsettling. Accordingly, the industry must work with regulators to ensure that client trust is assured. For China, that will require the adoption of comprehensive guidelines and policies in areas of data protection, cybersecurity, and data privacy. China has already made important strides over the past decade in this direction.

Part 5: Summary and Conclusions

Rapid innovation is underway, driven by increases in computing power and advances in software engineering. Change can be unsettling, but it also offers the promise to deliver valuable new products at lower cost and with enhanced security to the investing public. To realize the promise of new technologies, the asset management industry must work with regulatory authorities to assure public trust in our fiduciary aims.

The global investment and wealth management industries have undergone major transformations in recent decades. That pace of change continues to accelerate. In this paper, we explore how technological innovation is shaping the future of asset and wealth management. We also summarize key implications for China, its asset management industry regulation.

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