A New Era
31 Aug 2022
John Lehner, president of FundGuard, outlines why front-to-back and cross-industry operating models, driven by the use of cloud-native technology and AI, will pave the path for the future
Image: jirakit/stock.adobe.com
The fact that the fund management industry has a major technology problem is well known. Legacy systems, many more than 30 years old, simply were not designed for an industry that does not look anything like it did when they were developed and built.
Data volumes are not only exponentially higher than ever before, but also more varied as new asset classes and products come to market. Client expectations have also changed beyond all recognition – gone are the days of a quarterly statement and an annual meeting to discuss. And of course, regulatory change has been significant and certainly does not look like it will slow down, making it essential to embed increased transparency and efficiency, and better safeguards into all business processes.
What this means is that today’s asset managers need a single source of truth, in real-time, which will enable sophisticated, cross-business operations and data insights, deliver a differentiated customer experience, and support the increased regulatory oversight.
The good news is that, as an industry, we all have a clear idea of the challenges and generally accept that we need to change. The patchwork of temporary fixes and complex workarounds that are rife across the market are not sustainable and do not sufficiently meet the need, and fiduciary responsibility, to increase alpha, reduce risk and enhance customer experience.
The fact is that today’s technology and the option to implement true digitalisation can solve these problems, driving change at a fundamental level. Doing so, however, requires an entirely new eco-system and a shift in thinking as to where middle and back-office processes become a utility, not a differentiator – a truly digital operating model. As firms increasingly see this, the questions shift from: “what do we need?” to “how do we make this happen?” Central to this is understanding what is required, and what the immediate and long-term benefits are.
A digital operating model
We have seen industry players investing in front office and client-facing technology as a pathway to digitalisation. Unfortunately, this does not meet the true need – which is to ensure that your data, and the processes and decisions that flow from that, move seamlessly around the organisation. Digitalisation needs to start from the back and should remove barriers, not add new ones.
A true, ground-up, cloud-native approach enables this genuinely digital operating model. Implementing this solution as a utility, in which a certain base level of capabilities is standard, means that managers, custodians, and other industry players can differentiate themselves on the quality of their service and product offering — not on their ability to provide back-office processes. Firms will benefit from the learnings and automation that can be applied across the industry, particularly in the context of regulatory requirements and oversight.
Modern trading, front office, and dashboards only work when they are powered by real-time data that is consistently, immediately, and seamlessly integrated across all touch points. In turn, this drives better decision making and enhanced analytics (and increased profitability and customer satisfaction). But for most firms, this currently does not exist.
Cloud-based solutions also make change easier to manage. New asset classes – such as the surge in interest in crypto assets currently being experienced by global markets – can be easily incorporated into existing systems in a way that is not possible right now.
It is complex, but not as difficult as it looks
Organisations are often blinded by the fear of change because they believe that significant technology projects, particularly ones requiring wholesale change, can be prohibitively expensive and resource-intensive, and often with unclear return on investment that makes it hard to justify. This is exacerbated by a lack of certainty that any project really will lead to the changes and enhancements promised in the original project outline. These concerns have dampened some of the enthusiasm for a real move towards digitalisation.
While this is an understandable hesitation, it does not reflect today’s reality in which process and migration has been completely transformed by cloud technology. The complexities and difficulties of preparing for and accommodating needs such as integration, infrastructure, data, and resiliency do not exist in the same way because these are built into solutions from the start.
What this looks like in the real world is that unforeseen obstacles are fewer and less hazardous. An excellent example of this is data. For any firm considering a shift in their internal workflows and the technology that facilitates this, data is always a concern. What data exists and how it can be transformed to work in a new environment has been, in the past, a massive project in itself. Today’s machine learning and artificial intelligence (AI) tools have advanced so much that ingesting, processing, and reformatting data is less complicated, as well as less risky and time consuming.
Suddenly, what was once a major obstacle becomes just another step in the process.
Being in the vanguard of change
A truly digital, front-to-back and cross-industry operating model, driven by the use of cloud-native technology and AI, is undoubtedly the future.
Firms that are engaging with this today are shaping the future of investment accounting and will be the first to see the benefits of a high-quality utility that is informed by the industry ‘hivemind’ and removes the pain and risk of back-office processes, freeing up time and resources for true differentiators.
Better data, better analytics, more integration, and the ability to evolve quickly are all central to today’s customers, many of whom have already gone digital and expect the same from their service providers.
Data volumes are not only exponentially higher than ever before, but also more varied as new asset classes and products come to market. Client expectations have also changed beyond all recognition – gone are the days of a quarterly statement and an annual meeting to discuss. And of course, regulatory change has been significant and certainly does not look like it will slow down, making it essential to embed increased transparency and efficiency, and better safeguards into all business processes.
What this means is that today’s asset managers need a single source of truth, in real-time, which will enable sophisticated, cross-business operations and data insights, deliver a differentiated customer experience, and support the increased regulatory oversight.
The good news is that, as an industry, we all have a clear idea of the challenges and generally accept that we need to change. The patchwork of temporary fixes and complex workarounds that are rife across the market are not sustainable and do not sufficiently meet the need, and fiduciary responsibility, to increase alpha, reduce risk and enhance customer experience.
The fact is that today’s technology and the option to implement true digitalisation can solve these problems, driving change at a fundamental level. Doing so, however, requires an entirely new eco-system and a shift in thinking as to where middle and back-office processes become a utility, not a differentiator – a truly digital operating model. As firms increasingly see this, the questions shift from: “what do we need?” to “how do we make this happen?” Central to this is understanding what is required, and what the immediate and long-term benefits are.
A digital operating model
We have seen industry players investing in front office and client-facing technology as a pathway to digitalisation. Unfortunately, this does not meet the true need – which is to ensure that your data, and the processes and decisions that flow from that, move seamlessly around the organisation. Digitalisation needs to start from the back and should remove barriers, not add new ones.
A true, ground-up, cloud-native approach enables this genuinely digital operating model. Implementing this solution as a utility, in which a certain base level of capabilities is standard, means that managers, custodians, and other industry players can differentiate themselves on the quality of their service and product offering — not on their ability to provide back-office processes. Firms will benefit from the learnings and automation that can be applied across the industry, particularly in the context of regulatory requirements and oversight.
Modern trading, front office, and dashboards only work when they are powered by real-time data that is consistently, immediately, and seamlessly integrated across all touch points. In turn, this drives better decision making and enhanced analytics (and increased profitability and customer satisfaction). But for most firms, this currently does not exist.
Cloud-based solutions also make change easier to manage. New asset classes – such as the surge in interest in crypto assets currently being experienced by global markets – can be easily incorporated into existing systems in a way that is not possible right now.
It is complex, but not as difficult as it looks
Organisations are often blinded by the fear of change because they believe that significant technology projects, particularly ones requiring wholesale change, can be prohibitively expensive and resource-intensive, and often with unclear return on investment that makes it hard to justify. This is exacerbated by a lack of certainty that any project really will lead to the changes and enhancements promised in the original project outline. These concerns have dampened some of the enthusiasm for a real move towards digitalisation.
While this is an understandable hesitation, it does not reflect today’s reality in which process and migration has been completely transformed by cloud technology. The complexities and difficulties of preparing for and accommodating needs such as integration, infrastructure, data, and resiliency do not exist in the same way because these are built into solutions from the start.
What this looks like in the real world is that unforeseen obstacles are fewer and less hazardous. An excellent example of this is data. For any firm considering a shift in their internal workflows and the technology that facilitates this, data is always a concern. What data exists and how it can be transformed to work in a new environment has been, in the past, a massive project in itself. Today’s machine learning and artificial intelligence (AI) tools have advanced so much that ingesting, processing, and reformatting data is less complicated, as well as less risky and time consuming.
Suddenly, what was once a major obstacle becomes just another step in the process.
Being in the vanguard of change
A truly digital, front-to-back and cross-industry operating model, driven by the use of cloud-native technology and AI, is undoubtedly the future.
Firms that are engaging with this today are shaping the future of investment accounting and will be the first to see the benefits of a high-quality utility that is informed by the industry ‘hivemind’ and removes the pain and risk of back-office processes, freeing up time and resources for true differentiators.
Better data, better analytics, more integration, and the ability to evolve quickly are all central to today’s customers, many of whom have already gone digital and expect the same from their service providers.
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