Higher interest rates will cause corporate defaults to rise especially among so-called "zombie companies" with low profitability that can't handle higher debt servicing costs. But this creates new opportunities for financial asset management companies to invest in firms that have long-term potential and need new investments, Williams noted. "The market shift we see will make it easier to spot real value, and it's making it obvious where investment opportunities are."
Higher interest rates ahead may well mean the annual global growth rate - which has hovered around 3.5% for the past few decades - slows to 3.1% through 2031, Williams said. Still, "What is the level of GDP likely to be? $40 trillion bigger than it is today." Not such a bad outcome, all things considered.
Moreover, GDP growth is particularly good for financial services because those services grow faster than the average GDP. "As people get wealthier, they need all sorts of insurance products, and that wealth allows them to de-risk their lives," Williams explained.
Digital Bright Spots
"Technology is changing more industries than ever before," Williams said. But in many ways, financial services firms are just getting started when it comes to unlocking tech's full potential, and "there is still plenty of scope for digital transformation," he argued.
Three technology areas with particular promise are:
- AI/ML, which is already heralded by future-ready financial firms for its breakthrough abilities to drive efficiencies, lower transaction costs, and bolster accuracy. But as AI/ML use becomes more ubiquitous across financial services, it's likely that "even some processes that appear to be too cognitive to be automated, eventually can be," he said.
- Quantum computing has made huge strides from theory to practical experiments and applications in recent years. Three scientists took home the 2022 Nobel Prize in Physics for their work exploring the nature of entangled quantum particles—unique particles that seem to defy everyday logic and behave as a single unit (entangled), even when they're far away from each other (superposition). "It's like magic," Williams said. "Capture that, and there's another revolution coming right down the pipe in…the financial sector." Applying such findings could eventually impact everything from ultra-secure communications to complex calculations not easily handled by regular computers.
- Blockchain has gained more ground in financial services than any other industry. Still, "that even hasn't reached its potential yet," Williams said. For that to happen, distributed ledgers would have to be embraced by more financial institutions and for a broader range of use cases—some of which may not yet be on the industry's radar.
The big picture takeaway, according to Williams: "The financial sector will benefit significantly from the technological revolution and will do so more than many other areas of the economy."