Technology can help improve productivity and free asset management talent for wider client-focused roles. However, firms must change their culture to keep pace with ever-changing modes of operation.
Cost pressures, spikes in volume and volatility, and unwieldy legacy systems are nothing new for operational departments at asset management firms. However, these challenges have deepened over the past two-and-a-half years, reinforcing the need to review middle- and back-office processes. Now more than ever, firms that fail to embrace the digital world will be left behind, perhaps forever.
The shocks keep coming. Few expected skyrocketing inflation and war in Europe to follow markets rocked by a pandemic. Together with the rapid and seemingly permanent transition to hybrid working, the scale and pace of organisational change is unprecedented.
Of course, technology has always been part of the asset management solution. But it is only an enabler, there to manage assets, mitigate risks, and provide tools to leverage opportunities. Now, the new paradigm of working requires a whole new mindset where new tools are no longer viewed purely as a means to lower costs and scale up businesses faster.
Technology can – and must – drive collaboration in hybrid environments and help establish a firm’s culture. The younger generation of workers has grown up with intuitive, web-based tools and mobile apps. Modern solutions are required to keep them engaged. Younger employees increasingly bring a strong technical background to the workplace and expect to interface programmatically with technology solutions, increasing the demand for open-architectured systems.
Getting the right mix of tech and human intelligence is more vital than ever, particularly given the current skills shortage. For example, firms can use AI and machine learning to increase process automation in back-office systems, replace longstanding manual tasks, and enable staff to easily find and address exceptions rather than hunt them across dozens of reports. However, this requires accurate, clean, and to some extent structured data. Effective data management systems in turn will allow staff to apply their expertise to enhancing other areas of the client experience.
Yet tried-and-tested enterprise systems are often no longer fit for this purpose, at least on their own. Flexibility is the new mantra. Cloud-native applications, web-based solutions, and the ability to integrate these with tried-and-true core systems – at times in combination with managed services – will be the way forward.
Regardless of the operational model chosen, a key ingredient for success is clean, reliable, and high-quality data. Having access to a ‘golden source of truth’ is no longer just a nice to have, but a requirement for firms to deliver profitable results, differentiate themselves, offer required levels of transparency, and reduce the risk of regulatory non-compliance.
Naturally, fund managers and administrators will have amassed huge quantities of data over their history. Often this is located across a disparate set of applications and platforms. The challenge now is collecting that data and assessing whether it is clean, structured, accurate, and ready for use in financial models and reporting.
Effective data management is not an easy task. In the arena of ESG investing, problems have been well highlighted through recent regulations, such as the EU Taxonomy and Sustainable Finance Disclosure Regulation. The fact is, to support their ESG ambitions – and those of their clients – fund managers must produce much more granular and detailed information than in the past, not only at the fund level, but also at the level of individual securities.
Europe is ahead of the regulatory curve, but the US is not far behind – and, following the SEC’s recent and ongoing scrutiny of greenwashing, is arguably now moving faster.
To meet the new and demanding anti-greenwashing regulations, fund managers require access to rich ESG metrics to support portfolio strategy, product development, regulatory reporting, and compliance monitoring. Having the ability to tap into ESG data feeds inside core applications not only lowers upfront costs but can also help firms grow their ESG business by attracting assets, asset owners – and even socially conscious talent.
A digital facelift
Overall, having a one-stop shop for compliance is becoming increasingly important as margins continue to be squeezed. The ideal is to employ flexible systems that address the complexity of existing business requirements, offer intuitive rule-building tools, and cater to the workflow patterns of compliance officers – whether at asset managers, fund administrators, or custodians – while integrating all this into a single, robust compliance solution.
Comprehensive pre- and post-trade monitoring of investment restrictions must be real-time across the firm, but also include fund-specific mandates and address any regulatory constraints that might affect them. All this needs to be done while meeting stringent audit-trail and reporting requirements.
Agile processes should also be applied to fund administration. A digital facelift could include the ability to choose applications on a modular, web-based fund administration hub that provides a common user interface; digital workflow management; data visualisation tools; and exception-based process management. Automation can also streamline fund management operations, enabling firms to further manage cost, mitigate risk, and enhance efficiency.
The benefits are clearly evident on individual core functions such as net asset value (NAV) production and validation. NAV oversight has traditionally been a manual, labour-intensive task, where it is often and infamously carried out in spreadsheets. However new web-based, exception management-driven solutions are rationalising, standardising, and automating NAV oversight processes, including calculations, provision of clear metrics, and reporting for audit, board, and regulatory purposes.
Instead of looking for problems, team members can manage exceptions when they occur while focusing on core business competencies such as improving operational performance, mitigating operational risk, and delivering enhanced transparency and customer service.
Changing the culture
Ultimately, technology should improve productivity and harness the power of the workforce. However, asset managers must be ready to change their culture to keep pace with the ever-evolving modes of operation. Flexibility, agility, and automation are the watchwords if they want to keep and sharpen their edge.