What are some of the major challenges that asset managers are currently facing?
The broad theme of recent years is that asset managers are struggling with fee pressures and rising costs – and this was confirmed by our global survey. We also drilled down a bit deeper and found that managers have prioritised three related challenges: data management, responding to changing global regulations, and keeping up with automation.
Data management is a growing issue of concern because organisations feel overwhelmed by the amount they receive each day. Key challenges include managing changes to existing data sources and providers and consolidating data from multiple, disparate internal and external sources. Managers are also frequently tasked with adding new data sources and providers.
In the front office, for example, the challenges range from reconciliation to sourcing information and analytics, and cash forecasting. Data management solutions can help firms streamline their reconciliation processes and better source their information and analytics. For example, where it is essential to have access to comparable data across multiple sources when managing accounts, deals and trades, the right data management platform must be able to offer this.
The regulatory front presents a related challenge, as securities regulations across the US, Europe and Asia continue to evolve. Asset managers looking to increase distribution in global markets – a key growth strategy – often struggle to keep up with the regulatory change.
It takes a strategic approach to get ahead of the proliferation of data in the marketplace, and the changing regulatory compliance and reporting needs. Asset managers can start by defining what they need from their data, and what business priorities they want to address. By focusing on the right kinds of data, rather than trying to manage all of it equally, managers can leverage the information that is integral for maintaining future growth in a competitive market. This approach can also help create a regulatory-ready operating model. Processes designed to manage and quickly adapt to changes in the compliance environment can help reduce the risk for asset managers, especially when designing, building and launching new products.
Automation was the preferred approach to controlling costs among asset managers in our survey, ahead of rationalising product and other options. The past several months have demonstrated the benefits of automation, as managers that have built technology into their operating models are able to maximise efficiency and keep operations flowing smoothly even in times of crisis. Automation can help drive accuracy and speed across many functions – including valuations, trading and reporting – while reducing execution costs. However, investing in next-generation technology such as artificial intelligence (AI), machine learning and cloud-based data management solutions comes with a high cost, and asset management firms should be careful about how this investment will be balanced against the increasing pressures on their fee revenues.
Where do the main inefficiencies lie in the asset servicing industry?
Data management is the area where the greatest opportunities currently exist to improve efficiencies. As we saw in March, firms that were reliant on manual processing struggled to adapt to remote work. As increasing trading requirements and transactions grow in volume and the asset classes in which they invest become more complex, these firms may struggle to access and manage the accurate data they need for well-informed decision-making.
Why is it important to integrate the investment lifecycle by streamlining processes?
In order to attract interest from new clients, firms need to be able to effectively communicate and demonstrate that they are a sound choice. Some key ways that asset management firms can achieve this is by implementing a scalable, stable operating model and having a strong focus on transparency for their investors.
The managers that view their operations holistically as a whole office, rather than in silos of front, middle and back, have an advantage. They can more clearly see where procedures are bogged down by inefficiencies, where it makes more sense to outsource services that are not core to their investment process, and where leveraging next-generation digital technology can boost automation and improve decision-making. Take data management, for example. It is essential to have access to comparable data across multiple sources when managing accounts, deals and trades and an effective data management platform must be able to offer this.
Do you think the industry still has some way to go in terms of technological intervention and innovation?
While the industry has made great strides, many asset management firms still rely heavily on spreadsheets to manage their data and fax machines to communicate trades. In particular, the processing and tracking of alternative assets remains very manual. Asset managers that specialise in this asset class would benefit greatly from technology that helps speed their time to market.
In addition, functions such as idea generation and portfolio construction historically have not benefited from digitisation, automation and scalability. For most asset managers these activities are analogue and are trapped in the heads of their key investment professionals. By embracing technology, firms have an increased ability to assess the effectiveness of their investment processes, to scale their businesses and to institutionalise how they train the next generation of investment professionals.
Looking to the future, where do you think asset managers can look to develop further opportunities within their processes?
The potential of technology to reshape asset management has become more evident in recent months, with COVID-19 shining a spotlight on digital client interaction and resiliency. Our clients are looking strategically at implementing technologies that fit the way they work. The financial services industry – and asset management more specifically – is adapting to the increasing importance of technology. For example, the use of AI holds the promise of helping firms identify complex patterns and trends, potentially improving investment strategies. Automation can help drive accuracy and speed across many functions - including valuations, trading and reporting - while reducing execution costs.
Asset managers are also planning on increasing their distribution by investing in analytics to help support the investment process. Data analytics can help asset management firms make better investment decisions and more effectively focus their sales strategies on target investor types and locations. Many asset management firms are starting to realise the benefits of investing in this technology, from helping to remove bias from their core investment decisions and enhancing their internal research capabilities, to analysing their alternative data more efficiently.
While outsourcing is not a new phenomenon, we see more asset managers turning their attention to areas that had not previously been outsourced, particularly the front office. Clients recognise that functions such as trading, which had previously not been considered a candidate for outsourcing, can be done more efficiently by specialised providers who have expertise and reach.
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