As 2014 ends, the asset management industry continues to navigate through an extended period of intense regulatory change that has impacted all aspects of business, from developing and disclosing investment strategies to implementing new risk management and reporting procedures. While additional regulations are expected, Confluence predicts that next year the industry will aggressively seek to defragment the technology, data and services most critical to improving business performance and reducing operational and reputational risk.
"The current regulatory environment, coupled with the introduction of new fund investment products like liquid alternatives and non-transparent ETFs, has created challenges, opportunities and risks for asset managers and fund administrators alike," said Todd Moyer, Executive Vice President, Global Business Development at Confluence. "The pressure to institutionalize regulatory compliance procedures, improve data management practices and support new investment products and services will accelerate the industry's drive to consolidate back-office technology and fund data to improve business efficiency and reduce risk."
Confluence predicts three factors will expedite this shift in 2015:
- The saturated back-office technology landscape will see significant consolidation
- The rise of the Chief Data Officer (CDO) in the financial services C-suite
- Proliferation of fund product types will pressure fund administrators to adopt a holistic approach to technology
The saturated back-office technology landscape will see significant consolidation
The global financial crisis dramatically changed the financial technology landscape. With investor protection at the forefront, regulatory requirements for better risk management and greater transparency provided a massive opportunity for technology vendors to develop solutions faster and more frequently than in the years leading up to the recession. As a result, new technologies built to enable fund managers to meet new requirements have flooded the marketplace. While this has been positive for the industry, it has left the financial technology landscape fragmented.
The prevalence of single function technology solutions has diminished the value that each offers, as managing a growing number of vendor solutions and data sources has started to increase operational risk for asset managers. In a survey that Confluence conducted in September, four out of five asset management professionals whose firm uses multiple applications in the back office said that consolidating that technology would help their firm achieve higher operational efficiency. Nine out of 10 respondents said it was important for their firm to consolidate fund data into a common database.
"The market has become saturated with solutions that were developed to solve one regulatory or back-office problem," Moyer said. "We predict that asset managers will begin to push back in 2015. As they focus on defragmenting back-office technology and fund data to reduce operational risk, they will lean on the vendor community to provide broader functionality through a single platform."
The rise of Chief Data Officer (CDO) in the financial services C-suite
Since the 2008 economic downturn, the asset management industry has collected and analyzed vast amounts of data to better understand fund-level and market-wide risk. As the industry begins to shift in 2015 from data collection to data analysis, we predict the role of Chief Data Officer will be among the most critical to the asset management industry. CDOs will be tasked with leveraging their data assets to "bridge the gap" between business and IT and lead the charge to convert asset managers' big data problem into actionable business opportunities.
"As the industry learns of the impact good data management could have on a business' bottom line, the role of CDO will become increasingly important," Moyer said. "As CDOs are increasingly viewed as the key driver of converting data assets into business opportunities, data initiatives will become a bigger focus of planning at the board. We believe CDOs will become the C-suite member who has the single greatest ability to transform how the asset management business operates in the years ahead."
Proliferation of new investment products will pressure fund administrators to adopt a holistic approach to technology
Over the past year, fund administrators have increasingly been tasked with expanding their service offering as asset managers have sought growth through offering new investment products. As fund administrators seek to grow with their asset manager customer base, they will have to move away from a specialized service offering that targets a narrow range of investment strategies and offer back-office technology and data management tools that can accommodate a broader range of products. In turn, administrators will look to the vendor community to provide them with the technology and functionality they need to expand their platform offering as quickly as asset managers are diversifying their investment products.
"Over the course of 2014, asset managers have been rapidly expanding the breadth of their investment product offerings," Moyer said. "As a result, fund administrators are facing pressure from asset managers to expand their support service offering. To manage the cost and operational risk of rapid growth and diversification, fund administrators will need to implement a unified source of technology that can support the rapidly growing number of products now coming to market."