Through digital transformation of the asset management operating model, new technology and agility could come to life.
The asset management industry is undergoing significant transformation today, and asset managers must respond in creative ways, particularly regarding the evolution of their operating model and the adoption of digital technologies.
Traditional operating models are not flexible enough and are unable to effectively combat the onset of disruption heralded by digital platforms, cross-industry ecosystems and an exponential increase in investment complexity. Given the pace of business and technology change, as well as evolving investing preferences, a new operating model needs to embrace both innovation and agility.
Any new model should address every core capability across the enterprise—including product strategy, distribution, and middle and back office investment operations. To truly thrive, the operating model strategy must also harness the evolving capabilities of new technology. In fact, traditional enterprises that are slow to adopt lag digital high performers by nearly 25 percent for expected future growth.
This complex topic is the focus of our new paper, The Future of the Asset Management Operating Model. Among the paper’s insights on transforming operations, the following three topics are explored:
- Using emerging technologies to transform the back and middle office
- Establishing a strong data foundation
- Addressing change management issues related to new skill sets and an agile culture
Moving toward a “better” back office
To inject a level of scale into operations, asset managers should be working toward a tech-led back office, in turn driving costs further down. Advanced technology can revolutionize end-to-end processes, not just a portion of them. For example:
- Custody: Distributed ledger technology (DLT) could one day make the industry’s goal of real-time, trade date settlement an attainable reality by creating a direct, transparent and secure transaction model between custodians and counterparties. This model minimizes the need for confirmation across multiple entities and transaction channels.
- Reconciliations: Here again, DLT is key. Using DLT solutions enables the creation of a single version of a transaction which could be published to all transacting parties. Leveraging intelligent automation and analytics is also important.
- Valuations: To improve their risk profile and control framework, companies have opportunities to deploy new technologies such as analytics to supplement traditional practices.
The new middle office
Reimagining the investment management support model includes enabling far more integrated investment data and the introduction of data insights through new digital tools. Marrying data strategy to digital capabilities can enhance the level of investment support provided through real-time, cross-functional insights that present day-over-day portfolio intelligence in ways we never thought possible. For example:
- Investment Book of Record (IBOR): Enabling analytics and other digital capabilities are making an impact today. Digital capabilities are being piloted across our industry and will gain momentum in those functional areas where we can demonstrate solid results.
- Collateral management: When considering the future of collateral management and its purpose within the middle office, firms must consider the impacts of DLT, analytics and intelligent automation. Analytics, for example, can allow firms to trade the ideal instrument type to gain market exposure or help choose the most opportune securities to post as collateral.
- Investment management: We have seen the rise of artificial intelligence (AI) and analytics supporting the portfolio management process and supplementing the investment decisions of asset managers.
Apply technology end-to-end
Taking a step back from the functional areas themselves, there are opportunities that span front, middle and back office to connect systems and data into true end-to-end views. These consolidated interfaces enable users to understand, process and analyze data that previously resided in silos by leveraging digital capabilities for workflow, operational dashboards and systems consolidation.
Build a strong data foundation
To more effectively design an operating model that can support disruption, asset managers should ensure an effective data foundation is in place—one that promotes trustworthy, clean data and a strong governance structure. A strong data foundation drives the effectiveness of emerging technologies. Without an effective data strategy or data foundation in place, a lack of innovation and automation will reign, prohibiting firms from unlocking breakthrough scale and cost savings across their operating model.
Augment your workforce and culture
Full organizational acceptance of changes starts with leadership vision and direction. A key to achieving the new asset management operating model is to enable a culture that welcomes ongoing transformation and innovation.
Emerging technology will also require our industry to closely examine roles across an enterprise. The shift to a hybrid, “human + machine” environment introduces new jobs and skills, especially among data analysis and oversight roles. Asset managers will be required to balance current resource needs with the demands of the future, which will require an active and flexible workforce strategy and newly defined roles which will need to include:
- Change leaders
- Data scientists
- Operational analysts
Adapt to survive
Disruptive technologies and empowered consumers are increasingly focusing asset managers on the viability and adaptability of their operating models. It is important to challenge your current model and assess your data foundation, while also overhauling your talent roadmap and executing an effective organizational change strategy.
What will the characteristics of a successful asset manager be in five years? In 20? Some asset managers are still adjusting their models to today’s standard solutions. Going forward, asset managers need to design with future disruptions in mind—meaning, they need to take an iterative, agile approach. No one can be certain what the future will bring, so one key to surviving, and thriving, will be your ability to drive change at a pace unprecedented in our industry today.
To learn more, read: The Future of the Asset Management Operating Model