Asset managers are facing challenging times. What are the most pressing issues?
Globally, asset managers face a string of issues to contend with that impact their businesses – from stricter and more comprehensive reporting requirements and mounting market uncertainty, to pressure on fees and the rise of passive investing. Ed Gouldstone, COO Northern Europe, Asset Management, Linedata, sets out the key challenges he sees confronting asset managers today.
The search for performance
Maintaining investment performance and delivering returns for clients will always be front of mind for asset managers. However, the future outlook appears increasingly difficult amidst mounting economic uncertainty and the realisation that this unprecedented credit cycle might be coming to an end.
Indeed, a third of respondents in Linedata’s Global Asset Management Survey 2019 identified maintaining performance as their biggest business challenge. This is a stark contrast to last year, when the top challenge was adapting to new regulation (44%), as managers rushed to comply with MiFID II.
While pursuing the right investment strategy is clearly the decisive factor in the hunt for performance, it is important to note the role that effective portfolio management can play in helping to achieve this end.
"Whereas investors may have once been content with putting their money into a fund and only caring about returns, now they want greater oversight of where and how this capital is being deployed."
Access to real-time insights and intelligence throughout the investment process – from execution management to position tracking and reporting – can help managers identify, respond to and capitalise on opportunities, providing a competitive advantage.
Effective portfolio management can also support managers investment strategies by allowing them to diversify into new asset classes, including alternatives, to receive potentially greater returns.
And, firms can further shore up performance and profits by using advanced analytics to reduce operational losses – exactly the thinking behind the new machine learning-driven Linedata Analytics Service.
Achieving agile and efficient operations
In the wake of the financial crisis, many asset managers put upgrading their IT infrastructure on the back burner, simply patching and replacing parts when they broke or when absolutely necessary.
This means the industry is now rife with fragmented systems – often built over time and through acquisition – that are plagued with issues, drastically inefficient and at the breaking point.
We’ve also seen mounting costs, due in part to increased regulation such as Dodd-Frank, AIFMD and MiFID II, coupled with an era of lower returns, drive asset managers to seek greater efficiencies in their back-end systems in order to deliver greater value to clients.
However, while most managers recognise the need to achieve greater operational efficiencies, they are understandably reluctant to replace the parts of their architecture that are working well, and they want to avoid disruptions from ripping out technology that is due for replacement.
This has left many uncertain over the right approach to take. In addition, most would argue it is only worth upgrading their technology if it is compatible with, and future-proofed against, the next generation of innovations that will inevitably be developed.
"...a third of respondents in Linedata’s Global Asset Management Survey 2019 identified maintaining performance as their biggest business challenge."
Such considerations went into the development of Linedata Optima, an advanced workflow management tool designed specifically to optimise fund administration. Not only does it deliver operational excellence by automating repeated tasks, such as NAV calculation and reporting, but it also avoids the need for managers to completely replace their existing core systems.
Linedata Optima is able to surface data through APIs, which can then be manipulated to drive greater efficiencies. Furthermore, it is integrated in an entirely modular way, meaning it can easily be augmented or evolved as needed over time.
Addressing customer expectations for greater transparency
The chief concern of any investor has, and always will be, getting a return on their investment. However, we are seeing investors expecting more than just returns from asset managers, which has meant that firms have had to review their business operations and implement new measures to meet these demands.
Perhaps the best example of this has been the investor-led movement towards greater transparency – spurred along by the greater levels of reporting and cost unbundling that underpinned MiFID II.
Whereas investors may have once been content with putting their money into a fund and only caring about returns, now they want greater oversight of where and how this capital is being deployed.
While greater accountability is undoubtedly healthy for the industry, further levels of reporting and compliance inevitably increase overheads for fund houses.
In this context, transfer agency has a big role to play in increasing transparency in the distribution chain and ‘humanising’ interaction between asset managers and individual investors.
An effective transfer agency service, including investor portals, gives investors the responsiveness and access to information that the public has already come to expect of online banking services for some time.
This is a good example of how technology can serve both customers and managers – streamlining real-time interaction, while decreasing cost and manual effort for management firms.
This win-win is at the heart of Linedata’s Transfer Agency Portal, which supports ‘self-service’ by enabling investors to make trades, check balances and update personal information without picking up the phone or tapping out an email.
While every asset managers’ business will have nuances that present their own unique set of complexities, these broad challenges cut across the entire industry. Managers that can navigate them effectively stand to gain a distinct competitive advantage.
Furthermore, as the industry becomes ever more complex, digitalised and round-the-clock, adopting the right technology and systems – as well as partnering with a vendor that can advise on the best solutions – will be vital to helping asset managers traverse this changing landscape.
Watch Ed speak at length on asset managers' challenges below in our exclusive interview direct from FundForum International.