It’s not often that President George W. Bush, Kareem Abdul-Jabbar, and the CEO of NASDAQ all speak on the same stage at a conference. The Milken Institute’s Global Conference is a unique environment, with a broad cross section of technologists, economists and financial leaders. Sitting on a fintech panel this year, I saw asset managers and investors in just about every asset class and geography represented in some form.
Across the myriad viewpoints, there was one general consensus throughout conference, which is that many global assets are undergoing, or on the precipice of, inflection points. Six months after a tumultuous election, it could be allocators are finally coming to terms with the implications of a very different outcome from the U.S. election than many expected. Or, it could be the uncertainty many still feel about stability in the public sector—not just in the U.S. and Europe, but in China, India, and throughout emerging economies globally.
I saw profound concern about inflection points in sessions for nearly every asset class.
Global Credit experts focused on the need and implications for moving “Beyond the Dollar.” After more than fifty years of currency hegemony, the steady decline in U.S. production as a percentage of global output raises uncertainty for many whether this shift off the dollar will be gradual, or suddenly accelerated.
Large buyout Private Equity Managers spent nearly all their time describing either a newfound focus on creating value through integrated operational units, or on how they’re looking to diversify risk through a more global investment approach. Read: returns will face pressure unless they innovate.
Public Equity investors talked about how to prudently manage capital in a world where valuations are ‘stretched’—while also declaring the multi-decade debate on passive vs. active investing finally ‘over.’
Managers of assets everywhere, it seems, agree it is time to be especially careful of old assumptions, and ever vigilant of new models that will alter where value is created in their market.
In FinTech, this theme of inflection played out through one clear message: we are past the years of hype and promise, and rapidly approaching the ‘trough of disillusionment’. Everyone agrees the opportunity for technology to reduce friction in nearly all spheres of banking and investing activities exist, but too many questions still remain for how specific approaches will work when the economy inevitably turns. The long-term viability of the new models is uncertain. We stand at a ‘prove it’ moment.
What happens to returns for the billions of dollars of unsecured personal and small business credit now being originated by specialty lenders if unemployment ticks up a few percent? When will applications of digital currency move to the mainstream and affect everyday lives of people and small businesses? Whose models will hold up? And who has been simply benefitting from the benign economic tailwinds that have nurtured the FinTech industry over the past seven years?
My view is this skepticism is both natural and healthy. Perhaps unsurprisingly, I agree with many fellow operators who defend the value created by developing unique customer acquisition models, and better data analytics for underwriting with non-traditional data sets. Surely, there will be platforms unable to differentiate or withstand downturns. But, if the world is about to change, the nimble and data-driven should be the ones to see it first—and react.
I am fond of the old line from Jim Barksdale, “there’s only two ways I know of to make money—bundling, and unbundling.” For the optimistics in FinTech, we are at the start of a long ‘unbundling’ cycle, where more data-driven acquisition and underwriting techniques allow originators and asset managers to provide better returns on capital to shareholders and investors through targeted segmentation and focused execution. This, more than any other force, may be the ‘inflection point’ that drives the next phase of the FinTech evolution.
Leaving the conference, my thinking went back to another truth in times of profound change: as people, we tend to overestimate the change we expect in a two year period, and dramatically under-appreciate the change that will occur in a ten year period. It is a good reminder for investors and market participants of all stripes in tying together the throughline of anxiety and anticipation from so many of today’s leading thinkers.
This article originally appeared on LinkedIn.