Tech disruption makes finance investments 'very risky', says Blackstone's Schwarzman

Banks and asset managers are having to get to grips with emerging technologies that threaten their existence

An attendee finds out event information on a tablet carried by a robot on the opening day of the Future Investment Initiative (FII) forum at the Ritz Carlton hotel in Riyadh, Saudi Arabia, on Tuesday, Oct. 29, 2019. Central banks have run out of firepower to fight the next economic downturn, according to global finance chiefs gathered at an investment forum in Saudi Arabia on Tuesday. Photographer: Faisal Al Nasser/Bloomberg
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Technological advancement poses an existential threat to the financial industry globally, creating a risk that could divide most businesses into either disrupter or disrupted categories, according to bankers and investors.

Across the world, the financial sector is grappling with disruptive technologies that are threatening business models, offering consumers cheaper and easier ways of investing or transferring funds that threaten the commissions and fees that asset managers and lenders can charge. In many cases financiers are taking stakes in, or even buying whole, the companies creating these new technologies to protect their market share.

“We are all dealing with more uncertainty than we were in terms of technology and the disruption that is happening,” Stephen Schwarzman, chairman and chief executive of investment company BlackStone Group said yesterday.

“Ten years ago you could make an investment and be reasonably sure that the basic business model is going to remain intact. Now, whenever you make an investment, you look at the business model and see if it is going to be resilient – you are either going to be a disrupter or the disrupted, or both at the same time,” he told delegates at the third Future Investment Initiative in Riyadh.

Investment is much more challenging, the billionaire investor said, adding that those who get on the right side of the tech evolution will end up benefiting enormously.

“The next 10 years is a risky situation, very risky,” he said.

Investment in the FinTech sector rose 120 per cent last year to $111.8bn, but dropped back by 40 per cent to $37.9bn in the first half of this year, according to KPMG's Pulse of FinTech report.

However, the intense pace of change still raises questions about the future of the financial world and it is becoming an existential risk, said Noel Quinn, interim group chief executive of HSBC.

“We are all going through a learning curve as the pace of change is hard to keep up with for many people,” Mr Quinn said. “From our own point of view, there is so much radical change that can take place in any one market or any one business and actually it is arrogant to believe that any one of us is on top of all what can change in your business.”

John Waldron, president and chief operating officer at the Goldman Sachs Group, agreed.

"Our relationship with our clients has changed a lot in the last three to four years and [even more] in the last six months to state the pace," he said. The corporate sector globally is shifting capital spend from traditional areas towards software development, cloud, artificial intelligence, machine learning and quantum computing, he said.

“If you are not focusing your money and your intelligence and human capital [on technology], you are going to fall behind,” said Mr Waldron.