The use of new technologies like artificial intelligence (AI) and machine learning in the back and middle office could help transform the asset management customer experience.

The asset management industry will likely require a transformative redesign of the traditional operating model to drive success moving forward. This is a key theme of our recent report: The Future of the Asset Management Operating Model. Any new model should be flexible, responsive and ready to rapidly take advantage of emerging technology solutions.

A key to achieving this? Making better use of digital technologies like AI, machine learning, intelligent automation and distributed ledger technology (DLT). As part of our report, we looked at how the use of technologies like these in the back and middle office could facilitate the front office to take the customer experience to a whole new level.

Transforming back office functions with new technologies

Investment data accuracy, net asset value calculations, regulatory compliance: they all depend on back office functions. But it’s also true that the asset management back office often drives a larger share of the costs in the industry than support functions should.

In their drive to scale operations, asset managers should target a higher-tech, less costly back office. Below are some examples of ways in which advanced technologies can help to transform critical back office functions:

Custody: game-changing innovation

DLT could disrupt many parts of the trade lifecycle. Firms should prepare themselves for the impending disruption and push their strategic partners to share how their operating models are evolving toward a DLT market infrastructure.

Potential benefits include:

    • Bringing the goal of real-time, trade-date settlement within reach by creating a transparent, secure transaction model between custodians and counterparties.
    • Minimizing the requirement for confirmation across multiple entities and transaction channel.

Reconciliations: rapid identification and resolution

For processes like the tracking of cash and positions, reconciliations are becoming more frequent. The criticality of closing exceptions, along with time to completion, mean that identification and resolution should become faster and more accurate. Technologies like intelligent automation, analytics and DLT will likely play a key role here.

Potential benefits include:

    • Intelligent automation and analytics that free up resources to review and resolve breaks with the highest risk areas, or front-run transactions flagged as error-prone by predictive modeling.
    • DLT solutions that facilitate single versions of transactions to be created and published to all transacting parties. With accuracy verified, the need for reconciliations would be removed.

Valuations: greater speed and accuracy

Among the most time-sensitive and critical back office processes, security and portfolio valuations need to be accurate. If not, errors could be very expensive and cause severe reputational damage. This makes visibility into numerous data sources and secondary calculations essential, which could make advanced analytics hugely valuable.

Potential benefits include:

    • Helping firms to validate and identify errors or anomalies that might otherwise be missed by individuals.
    • Injecting new confidence into the valuations process, a function that’s currently high-risk and challenging to control.
    • Supporting the consumption of large sets of market data in real time, as well as providing rapid comparisons with industry benchmarks.

 

The power of technology to transform operations across the back and middle offices could give asset managers the ability to unlock value and realize top and bottom-line growth.


Transforming middle office functions with new technologies

Aggregated data, combined with digital intelligence, creates new possibilities for middle office functions to support investment management. These include seamless access to trade-date and near-real-time information across middle office systems.

Investment Book of Record: new investment insights from analytics

The generation and management of portfolio data should be reflected both in the platforms used to generate the Investment Book of Record (IBOR) and the people responsible for its accuracy. When they’re brought together at the right time, using analytics and other digital technologies, they can become a powerful investment decision-making tool for the front office.

Potential benefits include:

    • More holistic portfolio views, with real-time, fluid information.
    • Interactions with IBOR information through digital interfaces.
    • Ready access to critical information on market value, cash ladders and positions – not just across portfolios, but across all markets, products and global trading desks.

Trade support: no need for trade matching and settlement monitoring

Industry adoption of DLT will likely disrupt settlement processes and potentially eliminate the need to match trades to brokers/counterparties. Instead, settlement would be completed when trades are executed. As in custody, asset managers need to keep close track of developments in DLT and how these are likely to impact trade support.

Potential benefits include:

    • Future trade support operating models focused on unlocking value-added activities and insights that support the investment management process.
    • Facilitating insights that could help to support the investment management process.

Collateral management: informed and efficient margin movements

DLT, intelligent automation and analytics are expected to all have a major impact on the future role and purpose of collateral management. Over time, we’ll see these technologies turn collateral management into a value-added function rather than a means to an end for trading derivatives.

Potential benefits include:

    • DLT enabling the automation of margin payments for initial and variation margins (by distributed ledger and payment capabilities confirming contract terms and payment amounts).
    • Intelligent automation supporting verification, calculation and reconciliation of margin movements; with the operational burden of collateral management reduced, firms could focus on associated analytics.
    • Analytics allowing firms to trade the ideal instrument type to gain market exposure or help choose which securities to post as collateral.

Corporate actions: more accuracy and faster elections

Firms are currently evaluating how DLT could be used to communicate elections across custodians, investment managers and issuers. They’re also looking at how intelligent automation can process calculations through event notifications and positions. The challenge? Predicting which of these imminent developments to bank on, which to avoid and which to hedge.

Potential benefits include:

    • DLT used to communicate elections across custodians, investment managers and issuers.
    • Intelligent automation supporting the rapid processing of calculations.

The priority moving forward? Enterprise-wide, scalable operational design

As their technology infrastructures have evolved, asset managers have too often prioritized quick, function-specific responses to market pressures and regulatory requirements. Such targeted implementations have contributed to asset managers’ inability to realize increased profit margins as their revenues have grown.

Are you ready to take advantage of emerging technologies that create new opportunities for unlocking value and realizing top- and bottom-line growth through scale and efficiency?

To learn more, read: The Future of the Asset Management Operating Model

 

Submit a Comment

Your email address will not be published. Required fields are marked *