The growth of online gaming continues at a feverish pace. Fortnite is the latest viral gaming sensation and it’s not mere child’s play. It is big business underpinned by hard-nosed sales principles, some of which are highly transferable to asset management.
The Floss. Orange Justice. Best Mates. Make It Rain. Electro Shuffle. Infinite Dab. If you already know these terms, then you’re already up to speed on the global cultural phenomenon, Fortnite. If you don’t, then maybe you’ve seen kids doing specific dance moves at school, shops, or wherever else they happen to be.
For the uninitiated, Fortnite is a multi-player battle-themed video game that’s crossed over to pop culture. With 125 million players, it has even spawned a new type of celebrity, the professional gamer. Case in point: Gamer Tyler “Ninja” Blevins reportedly makes $500,000 a month streaming videos of himself playing and recently adorned the cover of ESPN Magazine, an honor normally reserved for athletes. So why is this relevant? Because cross border asset managers can learn a lot from Fortnite. Here’s why:
Fortnite has connected with a vast audience because it’s simple, free, and easy to play, regardless of prior gaming experience. It is easier to learn and be good at it than other popular games, and anyone with online access can play.
There is a takeaway for asset managers here. As global regulators continue to mandate higher fiduciary standards for products and impose increasing degrees of transparency, fund distributors and investors are more attuned to risks and costs than ever before. Nowhere is this more evident than the UK’s recent Asset Management Market Study (AMMS) which has kickstarted a global “value for money” debate within the fund space. Regulations such as MiFID 2, PRIIPs, SEC Regulation Best Interest, and Australia’s Superannuation commission report each look to ensure investors understand both what they are buying and the costs involved.
This, of course, requires that simpler language be used in investor communications, but also more fundamentally, forces managers to consider whether they the right products for their targeted investor set, and a cost efficient operating model that optimizes the use of technology.
2. Importance of Customization
Online gaming is a tremendously competitive industry. Not only are there are countless games to choose from, there are also several platforms on which to play. Unlike its competitors, Fortnite is platform agnostic. Players can access the game on a computer (PC or Mac), a smartphone (Android or iPhone), or a gaming console (PlayStation, Xbox, and Nintendo). The customer experience is identical regardless of the platform they use to play.
This is similar to the decisions asset managers are making about preferred distribution models. Choosing the right distribution strategy, partners, and platforms is ultimately crucial to success. Regulations like MIFID 2, SEC Best Interest, and others have shone a spotlight on appropriate distribution models and it has never been as important to get distribution strategy right.
The mixture of regulatory suitability and cost means that it is no longer viable to simply add every new product to every distribution platform or sales channel. A targeted approach is both required and more efficient.
Country, regional regulation, and consumer preferences are also inhibitors to one-size-fits-all strategies in asset management. Managers must understand the wide spectrum of local nuances, including asset class preferences, timing and format of investor statements, fee structuring, hedging methods, and even the investor onboarding process. It is mission critical for global cross border asset managers to work with partners who can assist with navigating this complex global distribution landscape.
3. Downstream Opportunities
Despite being available free of charge, Fortnite is making millions of dollars. That’s because it has created multiple downstream opportunities for micro transactions with gamers. For example, players can buy in-game rewards, such as new dance moves or outfits.
It’s not a perfect comparison, but asset management is also creating downstream revenue opportunities. Some asset managers have recently marketed “free” or “no fee” funds to investors. There are others considering providing “loyalty discounts” to reward longer-term investors. (There are many regulatory and logistical challenges to consider if traveling that road, but that’s a story for another day). Now, just because a fund is labeled “free,” doesn’t mean a manager won’t bring in money over time. Quite the opposite: by introducing lower-costs products, many asset managers hope to build durable relationships with customers, who might start out with zero-fee index funds but end up exploring more complex offerings (which typically come with higher fees).
In less than a year, Fortnite grew from zero to 125 million players globally. If any asset manager had this level of customer acquisition, their operational and client service infrastructure would come under significant pressure. Would they be able to keep up? With the customer experience becoming increasingly important, it is mission critical to ensure scalability for both current and future sales success.
The timeline for a fund to grow to a viable size is also increasingly important as the fixed costs to maintain a fund are not insignificant. For managers, cost is always a delicate balancing act: A product’s success is largely defined by the ability to scale assets under management relatively quickly. In addition to a differentiated investment strategy a fund must also have a competitive expense ratio when compared against peer products. The larger the fund, the greater its capacity to absorb fixed charges. To ensure they can bear these costs, asset managers need to prepare for market entry, work with the right partners on product build, and have operational confidence when entering the market.
5. Raising the Technology Bar
The technology behind Fortnite provides a positive user experience and makes it available on multiple platforms. Today, investors expect the same ease of use across all areas of their lives, whether in a gaming app or ordering a pizza.
Asset managers are not only competing against one another for clients, but increasingly their investors are benchmarking their asset manager’s service and technology against other non-investment related services (for example, the apps on their phones). As they know well, asset managers need to harness the potential of technology to stay competitive.
We recently raised the question of whether financial regulations are sufficiently fit for purpose when the activity they are regulating involves both human decision making and artificial intelligence. A solid regulatory foundation will be the bedrock upon which asset managers can deploy a greater level of technology. Regulators are moving quickly to proactively assess technological advancements, appropriately regulate them, and deploy technology as their own resource.