Asset Managers Set Sights on Defragmenting Back-Office Data
Over the past few years, the asset management industry has faced an onslaught of new and challenging expectations from regulators and investors alike. Asset managers must now address how this has impacted their business and focus their efforts on improving operational efficiency and mitigating risk. To develop stronger, more efficient operating models and position themselves for growth in the years ahead, asset managers will have to aggressively defragment the data, technology and services most critical to overall business performance.
At Confluence, we anticipate three factors will characterize and speed this shift in 2015:
The saturated back-office technology market will undergo significant consolidation.
We've seen an unprecedented period of rapid regulatory change since the height of the economic crisis. Asset managers have been forced to adopt a more strategic approach to compliance in order to stay competitive. In fact, an industry survey that we conducted in September 2014 found that 94% of asset management professionals voiced concerns that manual processes in the back office might impact their ability to control errors, which can expose the firm to a number of risks, including market, operational, and regulatory exposures.
The current regulatory environment has required technology vendors to develop solutions faster and more frequently than in years past. Regulations that address individual asset classes or investment strategies -- such as AIFMD for alternative investments -- have led to an abundance of single-function technology solutions that have left the financial technology landscape fragmented. The prevalence of such solutions has diminished the value of each one, as managing a large portfolio of solutions and data sources increases operational risk and cost. In 2015, asset managers will push to consolidate back-office technology. In Confluence's September 2014 survey, four out of five asset management professionals whose firm uses multiple back-office applications said that consolidating their technology would help their firm achieve higher operational efficiency. As the focus shifts to defragmenting back-office technology and fund data, the industry will lean on the vendor community to provide broader functionality through a single platform.
Chief data officers in financial services will see their C-suite stock rise.
Since the 2008 economic downturn, the industry has amassed an extraordinary amount of data to understand fund-level and marketwide risk. In 2015, as firms strive to leverage their data as an asset, the focus on data collection will shift to data analysis. This shift will make the role of CDO one of the most critical to the future of the business among the executive suite.
CDOs will need to lead the charge in converting asset managers' data assets into useful business opportunities. They will drive business growth and profitability, because they have the background and expertise to analyze and leverage enterprisewide data and use it to maximize company profit and cut company costs -- a critically different skill set from other C-suite personnel. CDOs are becoming so important to the business, in fact, that the research and consulting firm Gartner predicts nearly 25% of the 500 largest companies will have implemented the position by the end of 2015.
The proliferation of new investment products in recent years is pressuring fund administrators to adopt a holistic approach to technology.
The breadth and depth of new investment offerings -- such as liquid alternative funds and nontransparent ETFs -- has rapidly expanded in the last few years. In turn, fund administrators are facing pressure from their clients to expand their service offerings to accommodate more than a single strategy or fund type. Moving forward, fund administrators will need to provide back-office technology and data management tools that can accommodate and support a broader range of products. This will also help them manage the cost and operational risk of rapid growth and diversification among funds. In turn, administrators will look to their vendors to provide technology and functionality to expand their platform offering as quickly as funds are diversifying their investment products.
The takeaway
This past year showed us that asset managers are undertaking new measures to remain competitive and in compliance. Some of these changes have led to decreased efficiencies and increased risk as operating models have become more complex and data assets have been largely underutilized. To be positioned for growth in 2015, asset managers will need to focus on implementing more efficient, lower-risk business models that make smarter use of the data and technology they use to drive their business forward. That drive will begin with firms focusing on the defragmentation of the back-office data and technology.
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