[ I N - D E P T H
|
C L I E N T
C H A N G E S ]
I
n chaos theory, the butterfly effect is
a phenomenon whereby a localised
change in a complex system can have
large effects elsewhere. The theory is that
a single occurrence, no matter how small,
can change the course of the universe
forever.
If we take this theory and look for an
example of it within the financial services
industry, one such illustration arises in
the localised changes with investment
managers, which are having a wide im-
pact on the entire service provider model.
The world of asset management is
coming to terms with a new normal as fee
pressures, an ever-changing definition
of alternative products and investor de-
mands take hold. New asset classes such
as private capital, infrastructure and real
estate are requiring different services,
while ethical investing is creeping into
many strategies.
At the same time, regulations on
enhanced transparency have become en-
trenched in the day-to-day workings for
investment firms, meaning they require
a sophisticated set of tools to ensure they
comply.
These changes are impacting the oper-
ating model of investment managers, who
rely heavily on outsourcing providers for
middle- and back-office functions.
Simplicity, scalability and value
“For a growing number of asset managers,
it may no longer be possible to carry on
simplicity, scalability and value.
With technology infrastructure where possible their third-par-
ty partner needs to give them a simple and scalable platform that
provides an end-to-end view on the data needed to run their
business efficiently.
One chief operating officer for a European asset manager
explained at a recent event that they have begun a processing of
outsourcing, where they decided to extend their mandate be-
yond custody to include securities lending and other investment
operations.
They explained the outsourcing deal will be a key component
of their operating model going forward, with the decision to do
so being driven by cost, time-to-market and regulation.
“We had to look at things like our time-to-market, can we do it
faster if we give other activities to third-parties? And we want to
leverage our technology spend with service providers. My opin-
ion is you do not need to own your technology to be successful,
especially with infrastructure, and definitely with the applica-
tion of cloud computing on the front-office side,” said the COO.
“Leveraging the regulatory investments with third-parties is
also very important. That has led us to decide a wide-spread
outsourcing journey - with the first milestone expected to be
at the end of 2019, which has a scope of fund accounting, stock
lending and investment operations.”
Accounting changes
At the same event, another investment operations head ex-
plained they are more comfortable managing certain functions
in-house, particularly the middle-office which they feel is nec-
essary to manage the change for their portfolio and investment
managers.
“We have our core operations at the investment accounting,
reconciliation, pricing, trade settlement all aligned. Of the func-
tions we keep in-house, they are the ones that we want to keep
close to the investment managers,” said the head of European
investment operations.
“For a growing number of asset managers, it may no longer be possible to carry on tweaking the
operational model and market forces are dictating they may have to completely reassess it.”
ANN DOHERTY, REGIONAL SALES EXECUTIVE EMEA, INVESTOR SERVICES, JP MORGAN
tweaking the operational model and mar-
ket forces are dictating they may have to
completely reassess it,” says Ann Doherty,
regional sales executive EMEA, investor
services, JP Morgan. “This is driving
work for companies like ours. Our drive
to achieve greater scale and standardisa-
tion is vital to develop a flexible, global
operational model,”
Operating models for asset managers are
largely driven by three key buzzwords:
32
Global Custodian
Fall 2018
“We have placed our middle-office teams with the investment
businesses as they understand the data requirements, and are
closer to the change. I think agility of people is more important
than the agility of the tech.”
The fact is that changes are occurring throughout the chain,
and for asset managers to stay current with investors they need
all to adapt their operating model to best suit their strategies.
These pressures facing asset managers to enhance efficiency
are being passed onto service providers who in turn are having
to provide the tools needed to achieve those targets.
“To deliver the best client service, as a service provider we