Digital majors, FinTech and the threat to hedge funds

The world’s digital giants, Google, Apple, Yahoo, Alibaba and others, have made a habit of expanding into most business segments, providing one-stop-shops for consumers across a range of services from e-commerce to smartphones. The disruptive element of this innovative surge has folded a number of established industry players, and many believe the future is similarly bleak for traditional asset management firms as they face the oncoming wave of FinTech innovation by the majors. Online platforms, such as our successfully acquired client, have the potential to wipe out present fund houses if they are backed by the wealth of the digital conglomerates.

The world’s technology giants have already either indicated or are actively involved in the financial services area through online payment businesses. For example, Apple removed and banned Bitcoin-based apps from its app store in early 2014 as the company is likely developing its own digital payment product, while Google has a variety of services in this sphere ranging from Google Wallet to Google Checkout. In short, the majors are active in FinTech and they are there to stay in what is a natural and imminent evolution from their core business. Ultimately, this route of expansion will eventually lead them to muscle in on the business model adopted by asset fund managers.

The threat to traditional wealth management specialists is considerable. Many within the industry have stated that the innovation and dynamism found among the tech majors has been missing from asset funds for years. In a niche segment that caters to the elite, asset managers have been content skimming profits without external competition. An inflow of outside entrepreneurism, new FinTech models and brand recognition and transparency among millions of consumers worldwide would radically transform the landscape for the somewhat stale fund houses.

The movement into the traditional financial space has already been undertaken wholeheartedly in China, where e-commerce giants and rivals Alibaba and Tencent have started distributing asset-management products to their social media and mobile messaging users. Rather than compete, Chinese asset management firms partnered with the two majors, helping to raise billions of dollars from investors within a matter of months. A similar scenario of “join or perish” could be gradually incoming in Western markets, where demand for a mass rollout of wealth- and asset-management products by the tech giants is high.

However, the shift in the asset industry could also be a healthy one. Most fund managers have struggled to keep up with rapid technological advances, not understanding the digital transformation that is likely necessary to secure their future. The entry of the tech majors would clear out the cobwebs and remove the outdated players from the market, ultimately bringing benefit to the consumers.

As the likes of Google and Apple move further into the FinTech space, acquisitions of start-ups and small operators in the field of payments, FX trade and settlement systems are likely to grow from next year onwards.


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