​​​​​​ETF boom increases operational challenges for asset servicers

Latest Temenos Multifonds Every Fund Survey finds:

  • 78% of the asset management industry believe ETFs will sustain current growth rates
  • 62% predict increasing convergence between ETFs and mutual funds
  • Operational systems seen as the top challenge and risk
  • 1 in 4 feel asset servicers are not keeping pace with ETF growth and complexity
With ETFs breaking through the US$5 trillion mark at the beginning of this year, the increasing complexity of products is ratcheting up the technical and operational pressures on asset servicers, such as fund administrators, according to the findings of the latest Temenos Multifonds Every Fund Survey.
 
In a global survey of over 150 asset managers, custodians, third-party administrators and professional service providers, Temenos Multifonds has identified that the asset management industry remains very bullish on ETF growth​, with​ 78% of respondents thinking ETFs will sustain their current stellar growth rates. Strong growth is predicted across all geographic regions, with 30% expecting the biggest growth rates in Europe, 29% in Asia and 20% in North America. Coupled with this rapid growth, convergence between ETF and mutual funds is expected to accelerate, with 62% of respondents predicting increasing convergence over the next 2 years.
 
However, this growth brings both challenges and risks. The biggest challenge highlighted in offering ETFs is operational technology and systems, followed by regulatory compliance, and external connections to exchanges and participants. The biggest ETF risks most concerning the industry were liquidity risks and operational errors, cited by 34% and 20% of respondents respectively.
 
As a result, not all service providers are currently keeping pace with the increasing ETF growth and complexity, according to 1 in 4 respondents. However, the good news is that those asset servicers who can fully support ETFs will have a competitive advantage moving ahead, with 83% of survey respondents highlighting this fact.
 
Regarding the findings of the Every Fund Survey, Oded Weiss, Managing Director of Temenos Multifonds, comments: “While fragmented legacy systems and bolt-on surround technologies may have coped in the past, the asset management industry is increasingly realising that this approach is not fit for purpose moving ahead. Servicing ETFs quickly, efficiently and accurately raises particular challenges, and we are seeing an increasing number of clients looking to include ETF servicing in their core investment accounting system, all wrapped up in a single, global platform to handle both future growth and potential future regulation. With global ETF assets predicted to reach $7.6 trillion by the end of 2020, there’s a massive opportunity out there for those asset servicers who get it right.”