Once data strategy is at the heart of an asset manager’s digital transformation, only then can the ’tech stack’ be adequately engineered. Yet preceding even data, is a firm’s need to understand its evolving business model, our expert technology & operations panel hears.
Participants:
- Gareth Burgess, global head of IT development and data, Janus Henderson Investors
- John Lehner, president, FundGuard
- Duncan Cooper, chief data officer, Northern Trust Asset Servicing
- Nick Dekker, senior partner & head of technology consulting, Alpha FMC
- Tamryn Gunter, head of middle office position keeping & investment accounting product, BNP Paribas Securities Services
- Chris Mills, managing director, Citisoft
One key lesson learnt in asset management digital transformation so far is to put data at the heart of the business. Define the data, then build the tech stack to support it, is one prevailing approach.
A plethora of market and client data now exists for asset managers to plan their distribution and operations strategies. Their strategy might involve a ‘data lake’ – a term referring to a centralised repository for storing, processing and securing large amounts of data.
Yet despite the recognition of data’s importance – and not forgetting the vast interest in the tokenisation of assets and funds – the industry is still perceived by many to lag other sectors at digital change, in large part for a prevalence of ‘legacy’ tech, which holds back progress.
Nick Dekker, senior partner & head of technology consulting at Alpha FMC in the UK, said the firm’s research among 25 asset managers globally with £8 trillion of aggregate assets under management found 60% had already implemented Snowflake, a cloud-based data platform, or were going to in the next two years.
“It reflects a huge trend where firms are moving to cloud data to improve efficiency and meet the demand for analytics,” he said.
Dekker was speaking at a Funds Europe roundtable, held in partnership with FundGuard, that focussed on technology’s role in operational resilience, both in terms of asset management systems’ ability to withstand security threats (see separate article), and resilience in the face of changing client and business needs.
Dekker highlighted the presence of legacy technology issues, with some firms relying on mainframes that are “30 to 40 years old”.
“Some asset managers out there are metaphorically running a marathon in Nike Alphafly Threes, while others stumble along in flip-flops,” he said.
“Bringing it all together”
Gareth Burgess, global head of IT development and data at Janus Henderson Investors, acknowledged delays in the adoption of modern technology within asset management. “For asset managers, there is an issue with the cost involved in adopting technology such as native cloud sharing and APIs, and then with complexity, too, because M&A can lead firms to end up with multiple platforms, multiple architectures, and multiple teams.”
He said Janus Henderson’s approach to this challenge was to acquire businesses with specific technological capabilities not available in the firm, and rather than trying to consolidate acquired firms onto one technology platform, the solution lay mainly in people and culture – principally meaning communication and data sharing around the organisation.
“It all needs bringing together to some extent, such as for a reporting and compliance strategy, and so where we have five different private assets firms, they do communicate over the data. True transformation is not just about technology. It is also about people, processes and how they impact the business.”
Tamryn Gunter, head of middle office position keeping & investment accounting product for securities services, at BNP Paribas, argued that front-office technology around sales, trading and portfolio management is largely fit-for-purpose and continued to advance with the support of investment. However, she agreed that complexity arises from the existence of multiple platforms within middle offices, where compliance, reporting and fund accounting largely define activities.
“The industry is moving from a hybrid state a decade ago – where firms had different platforms for different geographies – to an integrated, single platform for middle office and fund accounting globally”
Tamryn Gunter, head of middle office position keeping & investment accounting product, BNP Paribas
Suggesting middle-office technology may be neglected, she said: “The industry is moving from a hybrid state a decade ago – where firms had different platforms for different geographies – to an integrated, single platform for middle office and fund accounting globally. To achieve this, the biggest consideration to overcome is to properly integrate to support asset managers with reporting and regulation. This is something the industry really needs to work on in the coming years.”
Not fit for the 21st century
Chris Mills, managing director at Citisoft, a management consultancy, was more critical. “The technology in place is probably okay for the business models to date – but I don’t think it’s fit for the 21st century,” he said.
Mills pointed out that evolving expectations of clients and the need to support commercial models were outstripping current technological capabilities.
“Asset managers are still grappling with how to fully utilise client data. Currently, grocers have a better understanding of their client demographics and needs than many fund managers do. This may be because our industry has so many intermediaries, which can obscure the view of our clients—but it doesn’t have to be this way,” he said.
“Grocers have a better understanding of their client demographics and needs than many fund managers do”
Chris Mills, managing director, Citisoft
Mills added that this was an important point for asset management firms that are marketing funds directly to consumers. Known often in the industry as the “D2C” market, Mills said certain other consumer-facing sectors, such as retail, have outpaced asset management in understanding the needs of their customers and he stressed that it was important for asset managers to re-establish direct relationships with clients.
Duncan Cooper, the chief data officer at Northern Trust Asset Servicing, argued that the age of a technology platform did not necessarily affect its efficacy. “Legacy” was not necessarily a pejorative word, he said.
“It can be the case that a system is badly implemented or even that the wrong technology for the right problem is chosen. My adage is that if you think technology is going to solve your business problems, you don’t understand technology and you don’t understand what your business problems are. By using the right tool for the right job, and by solving the right problem, firms can still make their business work, even with older technology.”
He cited an eSynergy white paper indicating that 40% of firms have a data strategy that is misaligned with their business goals.
John Lehner, the US-based president of investment accounting tech platform FundGuard agreed that fund managers often misaligned their tech strategies with their operating models.
“Right now, we see some firms creating operating models that follow their technology. It should be the other way round, that firms start with a clear view of their operating model and then work out how technology can sustain and scale that model,” he said. Lehner noted that although there are workarounds for legacy technology, the lower growth rates in the funds industry today make a strong case for modernising technology stacks.
Burgess, at Janus Henderson, emphasised that true transformation goes beyond merely swapping old technology for new. “Firms need to be spending at least 25% of budget on innovation across the organisation – and not just technology,” he argued, stressing again the importance of considering people and processes in transformation projects.
Northern Trust’s Duncan Cooper highlighted a shift in digital transformation from focusing exclusively on technology itself, to prioritising data. “People are looking at data as opposed to technology, and this is correct. In the past, vendors sold software packages based on features, functions and cost. Software packages, however, are not really differentiated – but the data you put into them and then take out again is differentiated,” he said.
Cooper criticised older systems for locking up data in “walled gardens,” making it inaccessible for broader use, and noted the revolution in cloud computing for solving this.
Extending tech literary to the boardroom
So, if the integration of technology and data really is a strategic imperative, can this be conveyed powerfully to boards? The panellists were asked what they would recommend technologists to pitch if they had access to their board?
Gareth Burges shared an example from Janus Henderson, where a Disruptive Financial Technology Board has been established, driven by the CEO. This board, comprising 20 members from across the organisation, debates future technologies like blockchain and reports its findings to the main board. Burgess said technologists at Janus Henderson like himself do have the board’s ear when discussing data and strategy.
“Right now, we see some firms creating operating models that follow their technology. It should be the other way round, that firms start with a clear view of their operating model and then work out how technology can sustain and scale that model”
John Lehner, president, FundGuard
“Right now, my pitch centres on how AI is going to drive greater thinking around data by bringing all of our data together,” he said. By integrating diverse data types, firms can unlock new insights and efficiencies.
Northern Trust’s Duncan Cooper said technologists should challenge the perception that technology and data are cost centres. “When firms hire technologists, there’s an immediate assumption they are a cost centre, along with compliance,” Cooper said. This cost-centric view hampers innovation.
Alpha FMC’s Nick Dekker highlighted a fundamental challenge. Change is potentially vast and needs time, which conflicts with a faced-paced sales environment.
“Investment teams and sales teams tend to say ‘yes’ to everything, whatever the client wants,” Dekker said. “The reality is, it’s very difficult to address decades of legacy technology when you keep saying yes to everything.”
Dekker’s proposal to the board was clear: take two to three years to pause on saying yes and fix the foundations. This strategic pause would enable firms to meet any client or fund manager’s request in the long run, building a more robust and flexible technological infrastructure.
Tamryn Gunter of BNP Paribas echoed this, emphasising the need for behavioural changes. “A cultural change is needed where there is more forward thinking and less emphasis on short-term profit and cost savings,” she said.
FundGuard’s John Lehner said that firms which give a voice to their technologists and align their operating models with technological support are those that are most poised for growth. History demonstrates it, he believes.
“There is a category of folks that do spend good time talking about this with the board. They make the effort to understand their businesses and I am convinced that there is a correlation over 20 years now between board access and inflows. This correlation will extend across service providers, too. Firms that cannot achieve this correlation are where technologists are not getting adequate time with the board.”
Dual approach, steady growth
The panel were broadly sympathetic to a thoughtful approach to lasting change, that it could foster a more sustainable and resilient future for asset management firms.
But Citisoft’s Chris Mills offered a pragmatic approach to digital transformation. “The industry is largely built on data. It shifts data around into different entities and calls them funds,” he said. With this in mind, he suggested that firms should keep their current business models running efficiently while simultaneously developing new operating models for different clients or products. This dual approach could ensure steady growth without sacrificing innovation.
Duncan Cooper also highlighted the often-overlooked role of customer service in profitability. He argued that digital transformation should extend beyond the front office to include client reporting and digital information delivery, which he said were critical for client retention and satisfaction.
Dekker supported this view, noting that excellent customer service could help retain clients longer during periods of low returns or losses. “A firm might retain clients for nine months longer in a period of underperformance if the firm demonstrates great service,” he said. Despite this, much focus tends to be on revenue-generating front-office activities, overlooking the significant impact of high-quality customer service.
When firms hire technologists, there’s an immediate assumption they are a cost centre, along with compliance”
Duncan Cooper, chief data officer, Northern Trust Asset Servicing
Indeed, as the asset management industry pivots towards direct consumer sales, the need for different business models becomes more pressing. Cooper pointed out that mergers and acquisitions, such as Abrdn’s 2022 purchase of direct investment platform Interactive Investor, reflected this trend. Mills said he perceived the US and Japan to be leading the focus on direct sales to consumers and that in Europe – although firms are catching up – they may need greater innovation to stay competitive in this particular client channel.
A nirvana of data
The panel discussion highlighted a crucial shift needed in asset management: data supported by fit-for-purpose technology needs to be at the heart of operations, and firms must connect technologists with senior management. Senior management, meanwhile, need to move beyond seeing technology as a sink hole.
And perhaps legacy systems alone are not the problem. As Burgess said: “I fundamentally disagree with the notion that there is one ‘nirvana’ in technology, comprised of one application that does everything. I don’t want one system. I want hundreds that allow me to change and adapt quickly.
“If we are moving towards a nirvana, it must be a nirvana of data.”
By rethinking existing systems, balancing current operations with future innovations, and viewing technology and data as strategic assets rather than cost centres, firms can navigate the complexities of digital transformation. As the industry moves towards direct consumer sales, embracing these changes will be vital for sustained growth and competitiveness.
Read the full Operational Resilience 2024 report, in association with FundGuard.
