Product rationalisation, outsourcing and data-cleaning top the operational agenda for global asset managers this year, according to a new Northern Trust survey.
The poll of about 300 asset management senior executives across 16 jurisdictions including NZ found cost-control jumped as an operations ‘strategic priority’ from fifth in the 2024 survey to second this year.
‘Enhancing quality and accuracy’ remained the most pressing operational goal, the Northern Trust report says, but the spike in concerns about expense shows “managers are under increasing pressure to protect margins”.
“Cost pressures remain a defining challenge for asset managers, influencing decisions about product strategy, technology investment, geographic expansion, and operating model design,” the study says.
“Survey findings suggest that firms are becoming more deliberate about the trade-offs involved in building, buying or outsourcing capabilities.”
The focus on costs has seen more managers look to rein-in fund suites, or at least pause expansion, with the proportion of respondents looking to add products falling from 60 per cent two years ago to 47 per cent in the latest survey.
“In practical terms, managers are choosing to keep what performs, scale what differentiates, and retire what no longer supports the strategic direction of the business,” the report says.
Aside from scratching sub-par products from the menu, institutional asset managers are also intending to outsource more of the operations workload with cheaper, foreign locations surging this year as the favoured option.
“… offshoring has emerged as the dominant cost-control strategy this year, cited by 69% of respondents — a dramatic rise from just 6% in 2024,” the Northern Trust study says.
But shipping ops overseas is likely more feasible for larger managers as the risks may outweigh the benefits for small-to-mid-sized investment firms.
Nonetheless, outsourcing in general has increased in popularity, albeit “the mix has shifted”.
“Data management was the clear leader in 2024 but has eased to 53%, while back-office operations now top the list at 54%. And the definition of non-core activities is growing. Activities such as trading are now being fully outsourced,” the report says. “Managers appear increasingly satisfied with their data capabilities and are instead turning to partners for the operational functions that sit around it.”
Furthermore, Angelo Calvitto, Northern Trust Asia Pacific head, says in the paper that investment firms are handing more of the outsourcing duties to “fewer” third-party providers.
“The goal is not only lower cost, but a more straightforward operating model with stronger control, better quality and the scale to support future growth,” Calvitto says.
And the ‘data challenge’ has also intensified as managers adopt new technology such as large language models, increasing the speed and complexity of information flow.
Close to half of respondents rated data-consolidation as the big worry with 43 per cent also angsty about cybersecurity costs.
“These results point to a market where many managers have accumulated large volumes of investment, operational, client, and third-party data, but still face difficulty standardizing, governing and mobilizing it across the investment lifecycle,” the study says. “The competitive issue is no longer access to data alone, but the ability to convert it into decision-ready insight with speed and confidence.”
Over the next two years, about half of those surveyed plan to build a data-management platform while a similar proportion will appoint a specialist service provider to address those concerns.
InvestOps Insights carried out the survey on behalf of Northern Trust during the June quarter of this year, targeting senior investment and operations executives in firms with US$500 billion or less under management.
NZ fund managers represented 9 per cent of the sample while Australia accounted for 10 per cent of respondents.