What’s behind the coming changes in the global investment management industry?

Today, we had an amazing day with our partners in Holland, IPR Plaza, TPA and i2c.  We took video and photos and will share more soon.

Now it's on to Dubai!

This is actually the third in a series of posts leading up to our upcoming session at Sibos. In the first posts in this series I talked about how the basic model of value creation is shifting from extraction to attraction and what this means for management in general and investment management in particular.

Remember how I talked about the shift in Boston from an industrial to a digital economy? This whole shift is caused by technology: computers, the internet and social technologies. This latest step, social technologies is a tipping point. Social technologies are not just Twitter and Facebook, but all also all the tools that empower customers, consumers, partners and employees to share, learn and control conversations. These tools give them unprecedented powers that will only grow. And they will fuel alternatives like crowd funding that can replace you completely.

What does that mean for investment managers? It means you have to look at companies differently. But it also means that you need to manage your own business differently. You can’t just think about extracting value, asking what do we get out of owning your stock? You have to think about attraction: why someone would want your money rather than someone else’s money?

This means that you have to ask yourselves questions like: What value do we bring to the system? How do we support a company’s ability to create value for its stakeholders? Remember, your financial capital isn’t as important to the creation of value was when companies needed massive amounts of money to build railroads and factories. They can start those with less financial and more intangible capital.

Think about Facebook. They got some venture capital but not the kind of numbers that you saw in the industrial era. Facebook was built on intangible capital, attracting smart people, partners and knowledge. They only used the public markets to partially cash out the founders. I actually think that Facebook could have and maybe should have skipped the capital markets and raised money from their users. Once they went to Wall St, they ensured that they would be an extractive business, focused on how they can take as much value out of the network without losing members—rather than how can we create the most value for everyone in the network? Their goals are not as well aligned with their users. Some day, someone will replace Facebook with a network where the users get a return on their contribution to the network, where the financial and management systems are aligned around attraction, not extraction.

Technology is behind the changes facing the global investment management industry. The power of this technology is in how it empowers employees, consumers, companies and investors to connect directly. To remain relevant in this market, you have to think about creating value, not just extracting it.

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