Survey results indicate that the drive to promote digital transformation (fig 2) is at the forefront of respondents’ priorities. A majority of survey constituents stated that this will be their biggest focus over the coming 12 months. Companies in the asset management industry are recognising the importance of pushing ahead with this digital transition, in line with the World Economic Forum recommendations outlined in our introduction.
Against a background of flat or declining industry profitability, asset management companies are seeking innovation designed to reduce the aggregate cost of investment, including their trading and post-trade costs. Mechanisms through which asset servicing companies can deliver flexible, cost-efficient services and which promote industry collaboration are fundamental to this meeting this objective.
Alongside this, respondents highlighted the development of new investment products and a drive to improve operational efficiency high up in their list of development priorities.
For the asset management respondents who indicated they were focused on the development of new investment products, we asked which specific types of products this would involve (fig 3). Two categories of fund product stood out in the survey results: alternative investment funds and environmental, social and governance (ESG) products.
Private equity, real estate, infrastructure and private debt investment has been growing strongly in European and North American markets and this has presented opportunities for asset servicing companies to support the needs of asset owners and asset management companies investing in alternative investment products. This has extended demand for fund administration and accounting around alternative investment products, delivery of performance measurement and risk analytics, along with the ability to deliver consolidated reporting across the investor’s multi-asset portfolio. This is especially prominent in the US market, where 67% of asset management respondents indicated that their primary focus over the next 12 months (in terms of new product development) will be the release of new alternative investment products.
Asset servicers are also supporting asset management clients in delivering efficient management of the large data sets associated with their investment strategies and fund sales/distribution. The key is to build a data infrastructure that facilitates better decision-making and insight across the business. The goal is to ensure consistency of data across the enterprise, to verify data quality and to enable the sophisticated analytics required to interrogate these big data sets effectively.
Investing in operational efficiency to survive
Digital transformation requires that asset management companies invest in their technology and operational processes from front to back, delivering innovation and cost efficiency to their investment strategies, to their trading, investment operations and distribution support functions. Some of these functions may be delivered in-house – others through outsourcing or partnership arrangements with an asset servicing company or other third-party technology providers.
The results of this survey highlight the importance, for asset managers, of investing in their operational systems to improve efficiency and to reduce the aggregate cost of investment. More than 90% of respondents indicated investment in operational systems is essential for asset managers to improve efficiencies and reduce costs (fig 4a).
The survey indicates that third-party technology providers will perform an important role in driving innovation in investment operations (fig 4c). This is reliant on using a flexible IT architecture, often supported through open application programmable interfaces (APIs) to manage data flows and to facilitate technology collaboration across this network of participants (see above).
In addition to redesigning their technology architectures, asset servicing firms are reassessing their methodologies for technology design and implementation. One important step has been to embrace agile methodology more fully into project management.
This emphasises close collaboration between development teams and business stakeholders, ensuring that the client is closely involved in the product planning and development process – and that regular product iterations are delivered to the client for testing and feedback. This approach is not new to the IT industry – the principles of the ‘Agile Manifesto’ were established from the early 2000s and embrace a range of well-established software engineering principles. However, the goal is to ensure that business specialists and developers work closely together throughout the project – and reflect regularly as a team on how to make the project more effective. These agile principles are being applied more widely across the asset management industry to enhance collaboration and responsiveness in software implementation.
In practice, this may also embrace a ‘DevOps’ approach to technology implementation that attempts to break down barriers between ‘development’ and ‘operations’ teams. The aim is to integrate software development specialists directly into operational environments where this code is deployed. In basic terms, ‘DevOps’ is the practice of developers and operations staff collaborating across the project lifecycle from software design through development, implementation and production support. This attempts to break from the ‘siloed’ approach that has often applied in the past to development and operational functions.
Asset servicing firms are also utilising a ‘microservices’ architecture which builds and delivers IT projects as a series of small, self-contained modules or components. Each component has a single, specific purpose and fits with other modules, like building blocks, to create the bigger project.
Within an agile framework, this enables specialised development teams to focus on, and take ownership of, each component. This can facilitate testing and debugging, where errors can be tracked to a specific component – and it can facilitate technology upgrades, where individual components can be replaced or upgraded ‘block by block’.
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