In the last couple of months, the issues of data management and data protection have dominated technology discussions within the financial industry. Now more than ever, we firmly believe that all asset managers face a challenging and rapidly evolving environment that poses both risk and opportunity in technology as we look toward the end of this decade.
PwC predicts a 6% compound annual growth rate for global AUM by 2020. Although North America and Europe will continue to control a large portion of the assets, significant growth will be generated from developing markets where the asset management sector is yet to mature. Technology will play a key role in bridging the gap between the matured markets and the high growth regions. Together, the technology and operations teams in asset management firms comprise a group that will see tremendous changes over the next five to six years.
The "globality" theme will put pressure on large firms to expand their technology infrastructure to new products, markets and regions; and demand a nimble architecture to support diverse needs from various regions. It will test the ability of technology and operations organizations to navigate proliferation of multiple systems within the same functional area across several regions, a problem that still plagues many large asset managers that have grown through M&A activities.
Smaller niche players may have an advantage in tapping into new technology capabilities, rather than relying on extending old infrastructure. In order to achieve growth, stability, and powerful execution capabilities, most asset managers will need to take a close look at how technology can be real partner in the business strategy.
For growth, significant focus will be on diversifying the asset classes, offering more alternatives and passive vehicles, and increasing access to retirement assets. For consistent profitability, a healthy combination of sticky assets, effective pricing, and consistent asset inflows will need to be maintained. Regulatory demands and the subsequent need for a robust controls environment and accurate reporting will put tremendous pressure on the technology infrastructure.
Given the large investment and longer time horizon of payback, technology initiatives will have different starting points for different firms depending on their growth strategy, profitability, and application / infrastructure maturity.
On one end of the spectrum, some asset managers continue to run their business on under invested technology platforms where most of the focus is on upgrades, or minor adjustment where they are always two steps behind achieving optimal capabilities. On the other end, some managers have taken the bold step to relinquish control over building and maintaining non-core functions and chosen the outsourcing route to rely on service provider's capabilities.
All firms within that spectrum will be challenged to take some bold decisions as to which end they need to move, especially when they are required to support multiple asset classes, complex and evolving financial instruments, complex reporting requirements, and connectivity across multiple geographic regions. Service providers will have to step up their investments to be worthy long term business partners where outsourcing relationships will take on a new meaning.
Data management is, and will continue to be, the life blood of a successful asset management business. The business case for adequate investment in data management will be more apparent as asset managers will be challenged to produce accurate client, regulatory, and operations control reports.
Having a robust data management environment - clean data, good governance, controls, clear data dictionary and traceability - will be the foundation for more ambitious initiatives around big data and digital intelligence.
We anticipate innovative technology offerings that bridge the gap between product manufacturing and consumption whether it is about mining data from social media, CRM systems, and distribution network; or partnership between technology firms and financial services players to monetize available data.
By 2020, technology will have become mission critical to drive everything from customer engagement, to data mining for information on clients and potential clients, to operational efficiency, and of course regulatory and tax reporting. In addition, the demand for a seamless, integrated and tailored solution for each customer will drive technology for asset managers in the future.
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At the recent Technology and Strategy for Asset Management Boston Congress and Expo, some shared how they sifted through volumes of data to design models that help them make better trading decisions and managing operational risk. Some of these initiatives were more than 10 years in the making. Others averred that despite using the best of the technologies, they often can't harness the full potential that the systems offer due to lack of training, skill set, or incentives.
Firms that can successfully deploy and use technology will have an operational edge over those that cannot.
Debasis Sahu is an asset management advisory partner with PwC. This commentary first appeared in its asset management blog.