Fund Managers: Do fund managers need to reinvent themselves?

It is not an easy time to be a fund manager today. Technological disruption is changing the industry, passive funds are eroding the position of actively managed funds, while external factors such as political instability and a lower-for-longer rate environment are challenging fund managers to stay on their toes.

One common observation that the fund managers interviewed by Wealth have about the industry now is the speed at which it is operating. Thanks to the internet, information is widely available online, and this has also required fund managers to absorb and react to more information than ever.

“Back then, if you had information that no one else had, it put you in an advantageous position. But, now, it’s a more level playing field because information is widely available to most people,” says John Lau, senior equity analyst at Affin Hwang Asset Management Bhd.

“In those days, you might have a 20-page newspaper to read after work. But now we have tons of emails to read, with new ones coming in even at 2am. If we have insomnia, we won’t have to worry about being bored with nothing to read.”

Lau joined the asset management industry in 2013 after graduating from university. It has been a non-stop journey of learning since then. One day, he could be learning about smartphone components on YouTube, he says. The next day, he could be trying to understand why TikTok is so popular.

Ismitz Matthew De Alwis, CEO of Kenanga Investors Bhd, says: “Fund managers need to be self-motivated, with a strong thirst for knowledge, as it is a lifelong journey of learning … Because we are constantly looking for investment ideas, strong deductive skills are needed when researching economies, markets or global events. More importantly, fund managers in this fast-evolving environment must be able to adapt and sniff out new investment opportunities, strategies and asset classes.”

Fund managers nowadays have to sift through a slew of information and make sense of it. Not only do they have to do it well, but they have to do it fast and compete with others, since most people will have access to the same information.

Having more information does not naturally mean one will make better choices, says Lau. “It depends on how we interpret the information. We have to screen out what really matters ... For instance, when we look at data, it’s not just about how fast a company is growing but why it is growing and whether it can continue to grow. Those are things we need to process and think about.”

In fact, this ability to interpret information accurately and quickly is key for fund managers, who have to contend with the rising popularity of passive funds and automated investment management platforms such as robo-advisers.

Patrick Chang, chief investment officer of Principal Asset Management Bhd, says: “In the last two decades, we’ve seen how passive funds have overtaken actively managed funds (in size of assets under management), especially in developed markets. I’m a big believer in the fact that you can still deliver alpha through active investments. But I think it’s going to get more difficult over time.”

Chang, who has been in the asset management industry for two decades, believes fund managers will need to stay relevant by embracing technology and equipping themselves with new skills.

In addition, given the macroeconomic conditions globally, the days of fund managers’ focusing on just buying cheap stocks are over. The low interest rate environment and various external factors demand that fund managers be more flexible and holistic in their strategies.

“This year itself has been one of the most challenging environments that I’ve seen in a long time. If you were to dissect the market this year, there were probably three to four different cycles,” says Chang.

“We had the euphoria in February, the risk-off period in March and April [owing to the pandemic], and then we had the euphoria of quantitative easing, which resulted in a rally all the way to October. Now, we are in a different phase of value versus growth. As a fund manager, we need to be extremely flexible in our thought process and ability to cope with the stress.”

These are interesting times, he adds. “That’s what keeps me awake. I do think this is an industry where you need a different kind of mindset to stay in it.”