Be afraid: Google plans to shake up investment industry

GoogleGlobal technology giant Google is investigating ways to disrupt the investment industry, it has emerged. Google is becoming more powerful than many governments. It has been operating virtually tax-free in many jurisdictions, plundering local economies and putting people out of business – including in South Africa. It has been increasingly deciding the rules in the internet economy. Now it has its sights on the lucrative asset management industry. Google has commissioned research into how it can enter the fund management arena. Ominously, the New York-listed tech giant is refusing to comment about what its plans are. Looking at its other ventures, it is easy to guess that it will aim to seize control of technology and undercut all other players. And, of course, it will avoid paying tax. – JC

By Madison Marriage*

Google has commissioned research on how it could enter the asset management industry, adding weight to widespread fears in the fund sector that the world’s biggest internet companies could destroy the livelihoods of established fund houses.

Google's plans to disrupt the financial services sector. Search engine commissions research to make money in asset management.
Google’s plans to disrupt the financial services sector. Search engine commissions research to make money in asset management.

Google asked a financial services research firm, which has a record of helping large companies tackle new markets, to assess how to enter asset management two years ago. The research firm cannot be named for confidentiality reasons.

Although Google has not made a concrete move towards asset management since the study, its interest in the sector is likely to alarm large fund groups that are already struggling to keep up with new technology.

A senior executive at a large US fund company told FTfm in April that its “biggest fear” was Google deciding to enter the fund management sector.

At an FT conference in London earlier this month, Graham Kellen, head of technology at Schroders, one of Europe’s largest listed fund houses, said: “Obviously this is something we as an institution are concerned about [and] continue to monitor.”

The likelihood of Google or Facebook entering the market was frequently discussed as a “real threat” at a senior level within Barclays Wealth & Investment Management, according to a former executive at the bank.

Google has already displayed a keen interest in becoming more than just a search engine. Its venture capital arm has invested in more than 189 companies including Uber, a taxi app, and Kensho, a financial analytics firm.

Google also invests in more conventional financial assets such as government bonds. In 2010 the internet group launched a California-headquartered trading operation, which also has a bank-style trading floor, to manage its cash pile better.

But Campbell Fleming, chief executive of UK fund house Threadneedle, asked how easily large internet groups would be able to penetrate the market. “Google would find the fund management market more difficult than it thinks. There are significant barriers to entry and it’s not something you could get into overnight,” he said.

Catherine Tillotson, managing partner at Scorpio Partnership, a wealth management consultancy, agreed that regulatory oversight, as well as investor demands, would present a significant hurdle.

She said: “Entering a highly regulated industry is not something you do lightly. There probably is a subsection of investors who would have confidence in Google, but I think the vast majority of investors want a relationship with an entity which can supply them with high quality information, market knowledge and a view on that market. I think it is unlikely they would turn to Google for those qualities.”

Mr Fleming conceded that Google might have more luck in persuading retail investors to buy funds where established groups have failed. “A lot of these companies have better brand loyalty and are trusted more than many financial services companies. I can see [Google] going ahead given their customer reach.”

A PwC report in January concluded that fund managers’ failure to keep up with technological change will create opportunities for groups like Apple, Twitter and Amazon to break into the market.

Big internet groups branching into fund management could also present opportunities for the incumbents, according to David Stevenson, head of business development at Baring Asset Management.

“Google or Facebook could make a lot of money by distributing other peoples’ funds. Would I buy a Google fund? No. But would I buy a fund distributed by Google? Absolutely.”

Google declined to comment.

Copyright The Financial Times Limited 2014

(c) 2014 The Financial Times Limited

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