Key Current Challenges of the Asset Management Industry and Operational Answers

Peter EllisGuest Contributor:  Peter Ellis, General Manager EMEA, BI-SAM

Investment management is under great pressure. Volatile markets make accurate forecasting impossible and the growth in regulation increases the cost of doing business for all participants. Investment managers must find new ways of working to achieve more with less. Technology has a vital role to play in helping investment managers profit from change. We predict a new role for operating platforms in the investment management firm of the future. Change takes many diverse forms and stems from numerous different sources. However, at a high level, change is either driven by internal or external factors, or a combination of both. Successful asset managers are those that embrace change by re-engineering their businesses to meet new challenges created by change.

Drivers for change in asset management

Various independent research studies suggest that one of the major drivers for change is pressure on profit margins. In recent years, the entire industry has had to endure compressed margins. Why?

As market volatility has increased significantly, investment managers have been unable to project revenues confidently. And at the same time, they can no longer make assumptions about market growth or potential. Fierce competition has challenged traditional business models, so investment managers have to work harder than ever to win new mandates and to protect existing revenue streams. In parallel, costs have become harder to measure and more difficult to contain. The combined effect of revenue and cost pressures is squeezing the profit margins of most investment managers. This creates internal imperatives for changes to boost efficiency and increase business agility.

External factors have also changed irreversibly, creating a competitive landscape with many new challenges.

The impact of change on investment managers

The combined effects of internal and external drivers for change are having a major impact on the shape and composition of the entire industry. This is changing the way investment managers view the operating platforms that support their businesses. In the past, operating systems were often perceived as an unavoidable cost of doing business. They were seldom regarded as an integral component of business strategy or source of value.  However, all that is changing fast…

With margins under pressure, investment managers are adopting a more holistic approach to operating platforms and the business processes they support. Technology has become a major determiner of success throughout the entire investment management process, from investment strategy through to client communications and reporting.

Once deemed a ‘necessary evil’, the role of the operating platform has shifted to centre stage and is enjoying greater prominence. Investment management firms that identify the strategic importance and value of their operating platforms will be well placed to meet future industry challenges.  So what do they need from these platforms?

Investment managers should look for six main sources of value

Risk management: Investment managers now have to be able to demonstrate to clients and to regulators that they have excellent enterprise risk management processes and procedures, covering all aspects of investment and operational risk.

Delivering value to clients: Many investors have experienced a loss of confidence in investment managers’ ability to deliver real value through their investment processes. Managers need to demonstrate how they create value for their clients in order to regain this confidence. Operating platforms will play a vital role in providing in-depth analysis of investment decisions as well as identifying the underlying reasons for good and bad investment performance.

Customizing the client experience: Investors’ specific needs have to be taken into account in communication and reporting.

Reducing time to market: Managers need operating platforms that are robust and adaptable. These platforms have a strong investment programme to ensure that the richness of functionality keeps pace with industry changes and trends.

Operational scale: All the above challenges are aggravated by the need to control costs. Investment managers require operating platforms that are capable of reducing the overall level of manual processing.

Data management: Investment strategies become more sophisticated, all managers must deal with an increasing volume of complex data.  Accurate and timely data is a crucial component of success and serves many functions.

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