In SS&C Advent’s recent joint webinar with leading research and consulting firm Celent, Senior Analyst Jay Wolstenholme identified six major trends playing out in the asset management industry as we close out 2017 and look forward. These trends, as they drive down from the businesses they support, are reshaping asset managers’ operations and the technology they need to support them.
Trend 1: Low return investment environment
The post-financial crisis combination of historically low interest rates, experimental monetary policies and global regulatory reform has changed the investment world. And we’re seeing that play out in profound and diverse ways forcing an evolution in priorities for: improved transparency and liquidity, capital preservation, diversification and lower fees, as well as superior risk-adjusted absolute returns.
In response, asset managers continue to develop a spectrum of more specialized investment strategies in the search for alpha or to provide more targeted returns. These include smart beta, liability-driven investments, derivative overlays and total return alpha.
All of which lead to …
Trend 2: Demand for sophisticated investment decision support tools
If portfolio managers are to deliver better, more targeted investment returns, they need high quality front-end analytics. These include sophisticated tools for portfolio modeling, asset allocation, risk management, transaction cost analysis, collateral and financing optimization, and performance attribution – all of which becomeincreasingly complex as managers shift towards multi-asset strategies in an effort to meet asset owners’ return expectations.
Trend 3: Rethinking firms’ operational and technical architectures
But while on the one hand asset managers are diversifying their investment portfolios in the search for returns, especially by moving to a multi-asset environment, firms are also under growing pressure to reduce costs. And many are finding their existing front-to-back systems infrastructures can’t both deliver the level of operational support required, and do it efficiently.
Trend 4: Growing adoption of hybrid co-sourcing/outsourcing
The answer? Asset managers should adopt a more flexible approach.
Developing and running all the systems and operational processes in-house is no longer the best or most cost-effective option for the vast majority of asset managers – especially if you want to keep pace with the rapidly-evolving investment and regulatory landscape. Instead, there are now an abundance of providers available to take on these technology and operational challenges.
Third-party vendors are continually developing more robust and sophisticated technology solutions, and offering them in highly flexible ways – as on-premise installations, cloud-delivered applications, or as the backbone of a managed service.Meanwhile, fund administrators and custodians are broadening and verticalizing their offerings, with a particular focus on providing more extensive middle-office services.
Together, these give asset managers more options to outsource non-core activities, take advantage of third parties’ specialist expertise, and gain greater flexibility to move into new markets or product lines quickly, and without significant upfront capital outlay.
Trend 5: Exploration and experimentation in big data and AI
Another development that is transforming the asset management space is the rise of big data and artificial intelligence. The application of these emerging technologies is impacting every part of the investment management value chain – from client prospecting, sales optimization and onboarding, to research collection and analysis, asset allocation, trade surveillance, reconciliations and asset servicing. Big data and AI are already providing firms in the vanguard with significant competitive advantages. And the technology use cases will only grow and improve.
Trend 6: Asset managers’ search for greater volume
The final area Celent’s Wolstenholme discusses is asset managers’ focus on expanding their assets under management, especially given the industry’s ongoing shifts between active and passive management. As he notes, there are two ways to make net revenues: either with high margins, or by attracting greater volumes at lower cost. With margins under sustained pressure in recent years, many players are targeting the volume route.
Here automation is vital. Only by introducing streamlined, highly efficient front- to back-office processes can firms reach and service mass market investors at a lower cost point, and – crucially – do it profitably.
To watch or download the webinar – click here.
Trends in Institutional Asset Management – 2017 and Beyond, SS&C Advent and Celent, October 2017