Author: FINBOURNE– www.finbourne.com

This Q&A first featured in Markets Media.

The asset management industry is currently experiencing a dynamic transformation, driven by a multitude of factors such as the need for streamlined operational models to optimize costs, the migration to cloud-based solutions, the integration of sustainability principles, and the growing utilization of artificial intelligence.

These changes are reshaping the industry landscape, prompting firms to adapt and innovate in order to stay competitive and relevant in the evolving market. In this Q&A, Alex Monte, Director, Asset & Wealth Management Consulting – North America at Alpha FMC, and Christopher Farrell, Head of US and Global strategy at FINBOURNE Technology, discuss how firms should approach tech transformation to reap the benefits of a modern data pipeline.

Many investment firms believe their system estates are “good enough,” but these typically require costly, manual processes and are less scalable. What sparks firms to change?

Alex Monte: Even if aware of their limitations, asset managers are often reluctant to change their system and data architectures for several reasons. Aside from cost, firms typically cite complexity, lack of expertise, priorities, disruption to operations, organizational inertia, and uncertain return on investment as reasons why efforts are forever postponed. This leads to complacency, and the status quo.

However, clients’ needs are changing, and they expect asset managers to leverage technology to provide better services, tailored investment solutions, and real-time information on their portfolios.

Firms feel pressure to keep up with competitors who are adopting more advanced technologies that enable them to deploy new data-driven approaches. Regular technology investment is required just to keep your seat at the table, never mind advance your position — the risk of falling behind is too great and can lead to loss of clients and market share. So now more firms are realizing the benefits of adopting new systems and data architectures that offer improved efficiency, better insights, and enhanced control.

Christopher Farrell: Firms can no longer rely on a system estate that is “good enough,” and instead they are turning their focus to an innovative approach that allows them to differentiate.

We’ve experienced an explosion of data, and asset managers are diversifying their portfolios by incorporating both public and private assets, alternatives, and sustainable solutions into their investment decisions. On top of this, increasing regulatory requirements, cybersecurity and talent acquisition/retention are forcing firms to review their estates to find out where technology investment is required to keep up with demands in the future.

Cost reduction is at the top of everyone’s agenda, and as firms add more levels of complexity to their legacy technology, this becomes more and more difficult. The legacy operating models which have been used by the asset management industry for so long are no longer fit for purpose, and as the industry landscape transforms, so too should the technology that fuels data-driven investment decisions.

Building for and future-proofing is important, but there are differing voices around “what good looks like” for architectural solutions. What approach should firms consider?

Alex: Modernizing systems for future growth while avoiding disruptions to core business operations is a complex task. The right approach will depend on the specific needs and requirements of the organization, but the industry is aligning behind a modern data pipeline architecture that has several key characteristics:

• API-first: Standardization of data exchanges and reusability of APIs create more consistent and predictable interactions between applications and greater connectivity between systems.
• Scalable and Flexible: Cloud technologies accelerate the transformation process by providing infrastructure that is highly resilient. This reduces the time and resources required for deployment and maintenance and speed in meeting new business demands.
• Modularity: This approach makes it easier to develop specific parts of the architecture without affecting the whole. It promotes agility as the ability to address critical areas first and gradually build upon them will reduce overall impacts on the business.

Chris: I agree that navigating what “good” looks like is a challenge for many asset managers addressing tech transformation. However, to pave the way forward, firms are increasingly turning to an interoperable approach to data management. This facilitates seamless data flow across the organization and enhances operational efficiency.

To Alex’s point, transformation doesn’t need to be disruptive. The characteristics above combine to create an open, scalable architecture that is robust and future-ready to support growth and position firms for success in a dynamic and competitive market. An interoperable platform increases connectivity across your internal and external data sources, and this also enables you to understand where data consolidation and aggregation versus data virtualization is required.

Simply, if firms can’t understand where their data is flowing today, then they won’t be able to gain a clear picture of the data that sits across their data in the future. With a flexible data foundation, firms can prepare for the future and the challenges to come.

Can technology drive not just the cost agenda, but also revenue generation?

Alex: Absolutely. Data and technology play a crucial role in generating revenue across the business. While many firms are feeling the effects of more competition, fee compression, and volatile markets, leveraging data and technology strategically can help to reduce costs by saving valuable man hours and unlock new opportunities for growth. There are three areas where I see data and technology playing a fundamental role in revenue generation:

• Data-Driven Investment Strategies: New technologies allow firms to create more personalized and tailored investment strategies whilst managing costs. This provides new selling opportunities and cross-sell opportunities with existing clients.
• Improved Client Engagement:  By leveraging technology and predictive analytics, firms can better understand their clients, tailor their services, and create more personalized and meaningful interactions, leading to increased client satisfaction and retention.
• Innovative Products and Services: Technology opens the door to innovative financial products and services. Robo-advisors and quantitative investment strategies are powered by data-driven technologies. Offering such innovative solutions can differentiate your firms’ offerings to attract savvy clients and open up new revenue streams.

Chris: Implementing the right technology not only drives cost reduction but also enables companies to generate alpha, and industry leaders are now recognizing the revenue-generating opportunities that come with having the right data and technology solutions.

A modern data pipeline has the potential to revolutionize business operations by unlocking capabilities across multiple asset classes, e.g. private and credit, as well as improve efficiency and create new revenue streams. It also provides insights on the data you’re consuming as well as the data you’re producing to drive better evidence-based decisions, such as back-testing, stress-testing, and ‘what if’ scenarios.

As the volume and complexity of data continues to grow, having this robust data foundation provides a faster time to market to manage new data sets, driving flow into your funds, and attracting new allocators.

Change can be expensive and hard. How can a firm accomplish initiatives at speed without sacrificing security and reliability?

Alex: Leading and delivering large scale data and technology initiatives face many failure points over their life. When challenges in these areas exist, the result under-delivers, and typically exceeds budgets, leaving the organization fatigued and wary about undertaking further change initiatives. But  it doesn’t have to be this way.

Change initiatives are more than just “projects” — theuy are opportunities for firms to evolve. Continuous planning and adaptation allow firms to reassess priorities and adjust accordingly, rather than large “all at once” change initiatives.

Chris: To Alex’s point, implementing change is typically challenging not just because of technology and data, but because of people. The answer is a swifter, pain-free alternative to the disruptive, multi-year data transformation programs that carry additional operational burden and risk.

Taking incremental steps to change is key to avoiding disruptive system overhauls. It requires technology that can work with existing systems, to improve outcome-based use of data and remove silos, ensuring that the right people have access to the right data. Planning for the unknown is hard, but with a flexible data foundation you can adapt to change safely without having to re-architect your whole estate further down the line.

Technology has a large effect on a firm’s people and processes, with the potential to engage and empower staff in the long term. By addressing investment data management with the right technology, asset managers can restore the equilibrium between the data that is central to workflows, and the people that create insights and generate alpha from it.