Keeping technology current, relevant and in line with regulatory requirements is a constant challenge, according to Gerard Walsh, Global Head of Client Solutions for Northern Trust Capital Markets.
The challenges asset managers raised in a recent survey conducted by Northern Trust in partnership with Coalition Greenwich have direct links to their approach to technology, said Walsh.
Firms are challenged by performance (performance drives revenues), by rising costs and they’re concerned about securing talent, he said.
“All these things have technology implications,” he told Traders Magazine.
“Rising costs of tech itself, of data and of the people required to manage, maintain and use technology are common concerns for managers, no matter where they are located,” he added.
The white paper, The Evolving Asset Management Landscape: Only the Fittest Will Thrive, revealed that asset managers expect their top internal challenges over the next three years to include performance (59%), talent management (50%) and rising costs (44%).
When asked how they expect to achieve efficiency and cost savings, 63% said they would deploy new technology.
There are two sides to this, Walsh said – the tech firms need to service their client base (which is changing) and the asset managers need to manage their operations footprint.
At root, asset managers use technology to help them manage assets and drive performance. In its broadest sense, performance means technology is used to improve internal efficiency, productivity and to help make higher-quality investment decisions, he explained.
“There’s a constant replacement cycle for this sort of technology, and tech in use must be flexible enough to adjust to new investment strategies and asset classes,” Walsh said.
Firms must also consider the changing investor demographic and the wave of digital native users, whether clients or within asset management, he added.
These trends imply a need for technology that supports the use of data for better quality decision-making, and for the outputs of those systems to be available internally and externally on a digital basis, Walsh argued.
“That in turn implies firms will need technology that keeps pace with the growth in use of digital media,” he said.
One clear obligation is the regulatory demand to record all client facing activity on durable media, he said, adding that will be a challenge for firms conducting in- and out-bound communication with clients and staff on digital media and via digital channels, some of which may not even exist at this point.
According to Walsh, the speed with which technology improves – and new data sources emerge – poses issues for asset managers, who have finite time and resources.
One issue that’s often mentioned by asset managers is the legacy tech stack and its replacement cycle, Walsh said.
“This is especially true of installed systems vs. the availability of SaaS and light-install applications,” he said.
Firms updating their technology strategy with respect to the replacement cycle for legacy systems now have a broader set of options for change, he added.
“It may not be necessary to replace older technology with an installed like-for-like system if a solutions provider can support the firm in a lighter-touch, managed services partnership,” he said.
In this way, asset managers can rent technology capacity from service providers rather than embed the full costs of such technology on their own operating cost structures, Walsh said.
According to Walsh, sensible preparation for technology disruption includes strategies that can accommodate a degree of fast-moving flexibility around a core of well-understood and agreed technology objectives.
“Technology strategy must support the primary business objective of an asset manager, which is to manage money, drive performance and gather more assets to manage,” he said.
“Around that core, disruptive technology could be deployed flexibly via experimentation, proofs-of-concept, sandbox environments and the like, so disruptive tech can be tested without a wholesale commitment,” he added.
The white paper recommends that asset managers take a holistic view of efficiency that includes outsourcing some or all processes and more deeply integrating the front, middle and back office of the investment organization.
According to Walsh, asset managers are concerned about performance and rising costs.
“It’s well understood that costs of technology and data are significant budgetary concerns,” he said.
Supplementing an investment firm’s core activities – managing assets and driving performance – with functions, activities and support from partner firms on an outsourced basis is a sensible strategy to manage these concerns, he said.
This is especially true of the full costs of technology, which include data, support, change management, project implementation and upgrades through the investment lifecycle, he added.
Walsh pointed out that it’s now possible to avoid direct like-for-like replacement of an existing technology stack by considering outsourcing.
“Firms are now in a position to review and adjust their operating models so they focus their fixed costs (time, effort and resources) on truly business-critical activities and rent everything else on a variable cost basis,” he said.
“Outsourcing solutions to help alleviate the key challenges facing asset managers are available on a modular basis from service providers, who can deploy global scale, capability, resources and resilience in support of manager objectives,” he concluded.
