2021: Time for the asset servicing industry to shine
04 Jan 2021
Although last year was riddled with challenges, 2021 brings with it a sense of hope and an opportunity for the asset servicing industry to shine
Image: lily/adobe.stock.com
January. Probably one of the most unpopular months of the year. The magic and excitement of Christmas seems like a distant memory. The skies are grey, the air is cold and the sun is rarely seen. It’s a bit bleak.
But maybe this January will be different.
It marks the end of one of the worst and disruptive years in history. With the COVID-19 vaccine now being distributed, there is a pinch more certainty, and 2021 is already causing sparks of optimism. This year is also an opportunity to start a new slate on how societies are run and how investment strategies will underpin that change.
Last year put a huge strain on the financial services industry but it did provide an eye opener for a lot of firms. While the industry coped reasonably well under the pressure and challenges, it also encouraged people to rethink ways of working.
“When the impact of the pandemic struck our industry in March and April, we had to quickly adapt to ensure key services such as valuing funds and settling transactions continued to be delivered against a backdrop of significant volatility and substantial increases in transaction volumes,” comments Penny Biggs, head of strategy for corporate and institutional services, Northern Trust.
The pandemic exposed vulnerabilities and risks in the absence of robust business continuity planning.
Chitra Baskar, chief operating officer and global head of funds and product at Intertrust Group, adds: “The smaller managers that were operating with minimal in-house teams and infrastructure were the most affected.”
The key trend that emerged was the need to implement institutional-grade operational processes, according to experts.
Many larger managers also fully understood and embraced the importance of outsourced services, and it is believed that the continued trend for 2021 will be to have the right outsourcing strategy as well as a focus on due diligence and selection of service providers.
Bring on the data
Experts suggest that one of the main trends looking forward into the new year will be data. Although it has played a significant role in the industry for some time, this year it is expected to accelerate at an even faster pace. The expectation for most fund administrators and service providers will be to provide actionable insights and enhanced reporting by organising the data already in their possession, while overlaying data from external sources.
“Data is going to play an even more important role next year. Firms are increasingly demanding new data sets from existing and new data providers alike. However, not all of these data sets are mature and many lack the robust governance needed to ensure they can be digested by end users,” says Andrew Barnett, global head, RIMES.
Barnett also observes that firms are beginning to identify a lack of innovation when it comes to utilising data. “More often than not, it can be imprisoned by outdated legacy technology, antiquated policies and contracts, as well as misunderstood by the people and teams that use it,” he says.
This year, however, is already seeing the market asking for the provision of a managed data service, instead of buying more technology that will add an additional burden on their existing infrastructure.
Increasingly, firms desire models that have the flexibility to adapt to their strategy as well as being aligned with it. It has become apparent that firms want a model that will offer them greater choices in the data they use, as well as the flexibility to challenge the commercial models of the incumbent providers.
“Handling and management of data is a significantly trending area and there has been a greater focus on it industry wide over the past few years particularly in terms of accessibility of data and greater timeliness,” adds Declan Quilligan, head of hedge fund services at Citco fund services.
Trends to expect
Some of the major trends from last year, mostly ones that resulted from the pandemic, are inevitably expected to continue this year.
When the major first effects of the pandemic hit in March, unlike the financial crisis, there was not significant investor redemptions or significant gating, which was an important differentiator between what happened this time around compared to 2008/2009.
From a practical perspective, the whole industry moved to a work-from-home environment, while certain tools and technology became immediately of more interest to the industry. For example, Citco noticed their client base had a big spike in interest in their outsourced treasury/payments offering.
“Rather than using a disparate array of counterparty systems, our clients were looking for a centralised solution without an abundance of fobs and our centralised treasury and payments system met their needs for secure and automated payment handling,” notes Quilligan. It is expected that the increased demand for a centralised solution will continue to be a prominent trend.
Baskar suggests that outsourcing will continue to grow to leverage best in class infrastructure to build resilient operations and technology will drive another key trend for 2021 with adoption to cloud and hosted technology services.
Further key trends for 2021 will be the increased adoption of digital modes of working by the industry.
The focus is expected to be on the continued acceleration towards digitalisation to transform core operating models and the way the industry works. Experts suggest investment assets and the lifecycle management will be digital from the outset.
Opportunities to capture
There will be many opportunities to capture in 2021 around data, technology and also environmental social and governance (ESG).
ESG is a fast-growing part of the global investment landscape, and represents significant opportunity.
RBS International’s head of institutional banking in London, Neil Walker, explains it is also a necessity, and the new European requirements on measuring and quantifying ESG performance are only the beginning.
“With further regulatory activity at the sectoral, national and international levels to follow in the next few years,” adds RBS International’s head of institutional banking in Luxembourg, Ian Harcourt.
On the data side of things, service offerings in this space plus continued interest in middle office solutions outsourcing and specifically in treasury and payments will be opportunities in 2021.
“I anticipate those organisations that provide secure portals to manager and investor alike and facilitate online investor transacting through these portals will also see a significant uptake in investor demand for these services,” says Quilligan.
It is expected that there will continue to be a significant opportunity to serve clients’ needs across the entire investment lifecycle.
Meanwhile, as investment managers grapple with managing rising costs and driving bottom line performance, and asset owners seek increased governance and control, experts see more reassessing their operating models and considering outsourcing options to help them strengthen key processes and focus more explicitly on areas core to their businesses.
In Northern Trust’s 2020 survey of global COOs, it was identified that 85 percent of respondents had either already outsourced their trading desk or are interested in doing so in the future.
The survey also found that nearly half 45 percent are considering outsourcing data management in the next two years while approximately one-third are considering outsourcing foreign exchange and middle office functions.
“With the most successful institutions rethinking their operating models from the perspective of their whole office, seeking holistic changes such as outsourcing that can help them grow their businesses, this presents opportunities for asset servicers such as Northern Trust,” comments Northern Trust’s Biggs.
From Baskar’s perspective at Intertrust, he expects to see a growth in private capital funds, particularly the debt and real estate asset classes as the biggest opportunity in the next year and beyond.
In addition, cross-border investment opportunities off the back of the global pandemic will present opportunities in the distressed asset industry.
Rimes’ Barnett concludes: “The asset servicing industry has a true opportunity to shine. Organisations are going to put laser focus on strategy, which will encourage competition and for asset servicing companies to innovate.”
He adds: “Further, investment managers are looking to buy additional services to ensure they can implement the best operating model in as hassle-free a way as possible and align to their third and fourth party supplier management requirements. All this leads to an exciting new chapter for management models and more revenue streams to the asset serving industry.”
But maybe this January will be different.
It marks the end of one of the worst and disruptive years in history. With the COVID-19 vaccine now being distributed, there is a pinch more certainty, and 2021 is already causing sparks of optimism. This year is also an opportunity to start a new slate on how societies are run and how investment strategies will underpin that change.
Last year put a huge strain on the financial services industry but it did provide an eye opener for a lot of firms. While the industry coped reasonably well under the pressure and challenges, it also encouraged people to rethink ways of working.
“When the impact of the pandemic struck our industry in March and April, we had to quickly adapt to ensure key services such as valuing funds and settling transactions continued to be delivered against a backdrop of significant volatility and substantial increases in transaction volumes,” comments Penny Biggs, head of strategy for corporate and institutional services, Northern Trust.
The pandemic exposed vulnerabilities and risks in the absence of robust business continuity planning.
Chitra Baskar, chief operating officer and global head of funds and product at Intertrust Group, adds: “The smaller managers that were operating with minimal in-house teams and infrastructure were the most affected.”
The key trend that emerged was the need to implement institutional-grade operational processes, according to experts.
Many larger managers also fully understood and embraced the importance of outsourced services, and it is believed that the continued trend for 2021 will be to have the right outsourcing strategy as well as a focus on due diligence and selection of service providers.
Bring on the data
Experts suggest that one of the main trends looking forward into the new year will be data. Although it has played a significant role in the industry for some time, this year it is expected to accelerate at an even faster pace. The expectation for most fund administrators and service providers will be to provide actionable insights and enhanced reporting by organising the data already in their possession, while overlaying data from external sources.
“Data is going to play an even more important role next year. Firms are increasingly demanding new data sets from existing and new data providers alike. However, not all of these data sets are mature and many lack the robust governance needed to ensure they can be digested by end users,” says Andrew Barnett, global head, RIMES.
Barnett also observes that firms are beginning to identify a lack of innovation when it comes to utilising data. “More often than not, it can be imprisoned by outdated legacy technology, antiquated policies and contracts, as well as misunderstood by the people and teams that use it,” he says.
This year, however, is already seeing the market asking for the provision of a managed data service, instead of buying more technology that will add an additional burden on their existing infrastructure.
Increasingly, firms desire models that have the flexibility to adapt to their strategy as well as being aligned with it. It has become apparent that firms want a model that will offer them greater choices in the data they use, as well as the flexibility to challenge the commercial models of the incumbent providers.
“Handling and management of data is a significantly trending area and there has been a greater focus on it industry wide over the past few years particularly in terms of accessibility of data and greater timeliness,” adds Declan Quilligan, head of hedge fund services at Citco fund services.
Trends to expect
Some of the major trends from last year, mostly ones that resulted from the pandemic, are inevitably expected to continue this year.
When the major first effects of the pandemic hit in March, unlike the financial crisis, there was not significant investor redemptions or significant gating, which was an important differentiator between what happened this time around compared to 2008/2009.
From a practical perspective, the whole industry moved to a work-from-home environment, while certain tools and technology became immediately of more interest to the industry. For example, Citco noticed their client base had a big spike in interest in their outsourced treasury/payments offering.
“Rather than using a disparate array of counterparty systems, our clients were looking for a centralised solution without an abundance of fobs and our centralised treasury and payments system met their needs for secure and automated payment handling,” notes Quilligan. It is expected that the increased demand for a centralised solution will continue to be a prominent trend.
Baskar suggests that outsourcing will continue to grow to leverage best in class infrastructure to build resilient operations and technology will drive another key trend for 2021 with adoption to cloud and hosted technology services.
Further key trends for 2021 will be the increased adoption of digital modes of working by the industry.
The focus is expected to be on the continued acceleration towards digitalisation to transform core operating models and the way the industry works. Experts suggest investment assets and the lifecycle management will be digital from the outset.
Opportunities to capture
There will be many opportunities to capture in 2021 around data, technology and also environmental social and governance (ESG).
ESG is a fast-growing part of the global investment landscape, and represents significant opportunity.
RBS International’s head of institutional banking in London, Neil Walker, explains it is also a necessity, and the new European requirements on measuring and quantifying ESG performance are only the beginning.
“With further regulatory activity at the sectoral, national and international levels to follow in the next few years,” adds RBS International’s head of institutional banking in Luxembourg, Ian Harcourt.
On the data side of things, service offerings in this space plus continued interest in middle office solutions outsourcing and specifically in treasury and payments will be opportunities in 2021.
“I anticipate those organisations that provide secure portals to manager and investor alike and facilitate online investor transacting through these portals will also see a significant uptake in investor demand for these services,” says Quilligan.
It is expected that there will continue to be a significant opportunity to serve clients’ needs across the entire investment lifecycle.
Meanwhile, as investment managers grapple with managing rising costs and driving bottom line performance, and asset owners seek increased governance and control, experts see more reassessing their operating models and considering outsourcing options to help them strengthen key processes and focus more explicitly on areas core to their businesses.
In Northern Trust’s 2020 survey of global COOs, it was identified that 85 percent of respondents had either already outsourced their trading desk or are interested in doing so in the future.
The survey also found that nearly half 45 percent are considering outsourcing data management in the next two years while approximately one-third are considering outsourcing foreign exchange and middle office functions.
“With the most successful institutions rethinking their operating models from the perspective of their whole office, seeking holistic changes such as outsourcing that can help them grow their businesses, this presents opportunities for asset servicers such as Northern Trust,” comments Northern Trust’s Biggs.
From Baskar’s perspective at Intertrust, he expects to see a growth in private capital funds, particularly the debt and real estate asset classes as the biggest opportunity in the next year and beyond.
In addition, cross-border investment opportunities off the back of the global pandemic will present opportunities in the distressed asset industry.
Rimes’ Barnett concludes: “The asset servicing industry has a true opportunity to shine. Organisations are going to put laser focus on strategy, which will encourage competition and for asset servicing companies to innovate.”
He adds: “Further, investment managers are looking to buy additional services to ensure they can implement the best operating model in as hassle-free a way as possible and align to their third and fourth party supplier management requirements. All this leads to an exciting new chapter for management models and more revenue streams to the asset serving industry.”
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