The asset management industry is booming. But which firms will be able to take advantage?
Global assets under management are forecast to rise to US$111.2 trillion by 2020, and reach $145.4 trillion by 2025, according to a recent PwC report. Yet while the opportunities are enormous, this is no rising tide lifting all market participants. Intense competition, digitalisation demands, increasing fee pressures and relentless regulation are reshaping the industry and what it means to run a successful asset management organisation. As a result, PwC predicts that in five to 10 years there will be fewer firms managing more assets significantly more cheaply.
What will distinguish the winners? Attractive, competitively-priced product sets. Standout investment performance. Excellent client service. A high-quality, untarnished reputation. The typical success ingredients in other words, but delivered in new, and evolving, ways. All of which will demand powerful technology capabilities.
Changing product mix
In the relentless quest for better risk-adjusted returns, institutional investors continue to increase their exposures to alternative assets, such as real estate, infrastructure, private equity and private debt. This drive will see alternative asset classes more than double in size by 2025, and make up 15% of global assets under management, predicts the PwC report.
As noted in a recent white paper, institutional asset managers are responding by diversifying their product offerings to meet the demand and differentiate their capabilities. More and more managers are expanding into a broader selection of asset classes, from equities, fixed income and ETFs to swaps and other derivatives, hedge funds and private equity. Many are also developing a range of fund structures.
To stay competitive and capture a share of investors’ shifting allocations, asset managers therefore need the expertise, capabilities and tools to manage and account for a broader range of investment vehicles and strategies.
As with the diversification of products and asset classes, institutional asset managers need the skills and toolsets to manage complex multinational, multicurrency strategies, as investors look overseas in the search for risk mitigation, capital preservation and higher returns.
Institutional allocations to foreign markets may be nothing new. What is different today is the greater onus on and expectation of global capabilities, at a time when operating in the international environment is more challenging than ever.
Much of the difficulty stems from the increasingly stringent regulatory regimes firms must navigate when they venture into international waters. Wide variances in tax codes, accounting standards, trading and settlement practices, and market infrastructures are compounding the complexity—not to mention the usual market, country and political risks that asset managers must monitor and manage.
Fees and costs in the spotlight
While product and service demands are growing inexorably, asset management fees are under sustained pressure from investors and regulators. In part, this pressure reflects the ongoing shift to low-cost passive strategies. ETFs, for example, have seen massive uptake, and now comprise a growing portion of many asset managers’ businesses.
For investors, it raises the question of what value they obtain from their discretionary, active managers when passive strategies can produce fairly reliable returns. Figuring out the right active/passive business model, and adjusting fee structures accordingly, will be a key challenge for industry participants.
With fee pressures squeezing the top line, firms will have to reduce their cost bases if they are to maintain their profitability—no small task when more rigorous and complex compliance and reporting requirements are swelling industry costs.
Automation—to replace inefficient, often labour-intensive functions with scalable, integrated technology solutions—will be vital. Only by introducing streamlined, highly-efficient front- to back-office processes can firms reach and service investors at a lower cost point, and do so profitably. Yet many institutional asset managers remain burdened by legacy systems infrastructures that are unable to deliver the efficiency and level of operational support required.
Meeting investor service expectations
As well as enhanced returns and improved value through lower fees, we are also seeing heightened institutional investor demand for more responsive and transparent interactions and communication.
With the arrival of the digital age, a powerful, multi-channel client experience has become ever more critical to sustaining customer relationships. A quarterly cycle of paper reports and static information, interspersed with the occasional phone call or face-to-face meeting, is no longer enough.
Instead, clients expect access to more convenient ways of staying informed and engaged. Plus they want responsive, on-demand services that are more tailored to their unique requirements.
Incorporating rich digital functionality into firms’ existing offerings, and integrating clients’ data across these multiple service channels will be crucial to staying relevant to clients.
The technology imperative
As these trends grow and morph, and the asset management industry moves deeper into uncharted territory, robust yet flexible technology will be central to industry participants’ success, enabling them to pivot and adapt as the landscape shifts. And at the heart of this technology stack is the portfolio management system. Which is why it is vital firms evaluate whether their current solution is up to the job.
Too often, legacy systems lack the scalability, depth of functionality and breadth of asset coverage now required. Meanwhile, a patchwork approach, with multiple single-purpose applications, bolt-ons and workarounds acts as a drag on efficiency and invites significant operational risks.
Instead, firms that want to stay current and competitive in this dynamic marketplace need a single, scalable portfolio management system, one capable of accounting for and reporting on multicurrency portfolios and multiple asset classes, as well as new product types as they come on-stream. In addition, the system needs to be able to aggregate and update data from multiple sources to cope with firms’ increasingly complex and real-time information demands.
Geneva®: the complete solution for institutional asset managers
SS&C Advent’s Geneva® platform solves institutional asset managers’ core business needs. It is a highly-scalable global portfolio management solution, designed to support multiple asset classes, within complex fund structures, across all regions.
Leveraging Geneva eliminates the need for separate systems or spreadsheet workarounds to manage and account for different instrument types. Geneva’s multi-asset functionality enables asset managers to expand their offerings into hedge funds, private equity and other pooled vehicles, as well as complex swaps and other derivatives—providing powerful flexibility to support users’ businesses as they grow and adapt. Built-in NAV capabilities allow users to calculate daily net asset values as required for mutual funds and ETFs, while the platform’s open architecture ensures seamless integration with other internal and external systems, counterparties and service providers. And as a true multicurrency platform, Geneva supports trading, accounting and reporting in any currency.
Geneva’s IBOR/MBOR functionality also enables comprehensive, accurate and timely views of portfolio data across the enterprise, making it easy to monitor portfolios and positions in real time. Customisable dashboard views of gains and losses, performance, exposure, forecasting and market data deliver instant insights for better decision making and more responsive client support. More than 200 standard reports and easy querying capabilities further strengthen client interactions. Meanwhile, a full audit trail of system updates and highly-granular user access controls helps reduce operational risks, demonstrate best practices and gain investor confidence.
Flexible deployment options mean asset managers can also match Geneva to their business needs and operating preferences. As well as on-premise installations, Geneva is available on a fully-hosted basis in the cloud, making it easier to adopt, maintain and upgrade. As a result, asset managers can reduce their IT footprint and operational overhead, control their costs and increase operating efficiencies. And because of significant and continued investment in R&D, users can be sure Geneva will keep pace with industry trends and their evolving needs.
Ready for the future
Growth, globalisation, regulation and digitalisation are transforming the asset management industry, and with it the capabilities institutional asset managers must have to succeed. If firms are to embrace these evolving opportunities and overcome the challenges, they need the flexibility to make strategic business decisions based on their objectives, not on technology constraints. The right solution will go a long way to removing the barriers to growth and freeing firms to chart their own course.
To discover how Geneva can help your business, go to globalassetmanagement.tech.
- Asset & Wealth Management Revolution, Embracing exponential change, PwC, 30 October 2017, https://www.pwc.com/gx/en/industries/financial-services/asset-management/publications/asset-wealth-management-revolution.html
- Trends Reshaping Asset Management—There’s Nothing “Traditional” About It, SS&C Advent, http://cdn.advent.com/cms/pdfs/papers/WP-Trends-In-Asset-Management.pdf