Bloomberg Asset and Investment Management (AIM) global manager, Steve Ioannou, and regional manager, Philippa Thompson, sum up the data challenges for fund managers as detailed in their new report..
Forward-thinking asset managers need to embrace a long-term data-driven approach to their operations. Asset managers globally are collectively on a critical journey to modernize their technology and stay competitive, ensuring that they can continue to attract assets and optimize performance.
This is particularly applicable now as the industry becomes more fee-sensitive in the face of increased transparency and efficiency requirements from regulators and clients. Although the year started with MiFID II coming into effect, the outlook continues to be peppered with milestones with knock on effects for the majority of asset and wealth management firms, such as amendments to enhance industry rules for fund managers in Hong Kong and mutual fund modernization in the United States.
Furthermore, the urgency to ensure your firm is ready for increasingly complex data demands of the future is only becoming more apparent, forcing firms to prioritise conversations about their technology strategy.
As part of this journey, the consistent and timely access to data to help the front office discover and act on investment opportunities will be paramount. Driven by the need for efficiency in a fragmented technology landscape, firms are re-thinking what is sustainable for their particular growth trajectory. Data should be at the centre of a next generation buy-side firm’s technology strategy, regardless of size or expansion goals.
As such, a well-defined Target Operating Model (TOM) is essential for sustaining efficient and scaleable operations that can help rather than hinder growth. Developing a sustainable and achievable TOM is the best first step for firms to take, as it serves as a statement of operational goals, which enables an asset management firm to more easily identify the technology and data transformations that will help them reach their destination.
Defining key criteria for TOM success is critical at this stage, including how, where and when data plays a role. There are three additional considerations to address – when starting on this step.
The first step is to evaluate existing systems and processes. Many asset management firms utilize multiple technology solutions but this can cause a lack of integration, legacy software limitations and varied data sources. As such, common tasks such as calculating performance on a group of funds or determining exposure to an issuer can become difficult, while providing comprehensive investment oversight and market-abuse surveillance across the firm becomes near impossible.
The second is to identify internal priorities across stakeholders. Chief information officers, heads of operations, chief investment officers, data officers and technology officers may have shared firm-wide objectives, but may be focused on different departmental priorities. Considering each of these stakeholders and aligning them will help in developing the appropriate TOM.
Thirdly, consider what you want out of your partners and ensure they are clear about your priorities. Independent research has shown that many firms find that legacy in-house systems cannot scale to support new initiatives and turn to outside technology partners for critical and complex systems such as those for order and execution management, portfolio risk and analytics, and data management. A robust hosted system can also go a long way in futureproofing your data requirements.
Firms that thoughtfully plan their transformation are most successful in bringing their entire organization together to achieve this common goal.
With these key considerations addressed, we have identified a set of potential paths for most buy-side firms to follow as they approach their data and technology transformation journey. These paths are not mutually exclusive, as a firm may be on a few over the course of its growth, but they serve as a guide of what firms have gone through in their journey to operational success:
Boutique asset managers or hedge funds that specialize in a particular investment strategy are usually looking to scale their operations or carve out their niche to stay competitive. However, these funds often do not have scalable systems that are equipped to support their expansion plans so are hampered by tech limitations and cost constraints. As such, they should go deep with one technology partner to support growth, with minimal business disruption such as a hosted solution.
Asset managers or funds looking to expand overseas through acquisitions, partnerships or local talent often have to contend with disparate operating models and lack of a real-time global purview to assess performance. With ambitions to manage their investment portfolios at a local level with oversight from overseas, they need to adopt a singular buyside platform such as a global OMS for more consistent data transparency at a global level as well as scalability.
Those with a presence in a number of geographies will likely suffer from fragmented systems meaning meeting regulatory requirements and capturing insights internally are driving costs of operations up. Alignment is key for investment professionals in this situation as they need a consistent view of data across the investment cycle. As such, a centralized model should be created that includes a single global front office that is supported by a unified middle office that is flexible enough to comply with local jurisdictions and accounting systems.
Often, many well-established and global firms maintain complex technology systems and relationships. These firms may have gone through a number of paths as they grow and in doing so, they have struggled to scale their systems for growth, manage and monitor data usage and costs, streamline operational and front office processes, perform sound governance and performance management or achieve measurable workflow efficiencies. Asset managers that are successful on this path invest a significant amount of time to understand all local nuances and they plan to implement changes on a large scale and ensure there is firm senior-and middle-level buy-in across the whole organization. This path is not for everyone, but those that have embarked on it do so knowing that they are building a strong foundation for future growth.
Although we have identified four potential paths for asset management firms to take, the technology and data transformation journey is not limited to one path and is a journey that never truly completes. Whether firms embark on a specialty, expansion, consolidation or alignment journey, organizations and operating models will evolve along the way and new technologies and datasets will become available. To maintain an edge in an increasingly competitive investment landscape, each firm’s business and technology leaders will need to re-evaluate their TOM to ensure it stands the test of time.
Bloomberg AIM delivers global, multi-asset solutions for portfolio management, trading, compliance and operations.