The asset management industry continues to navigate through a period of intense regulatory change that impacts all aspects of asset management, from developing and disclosing investment strategies to implementing new risk management and reporting procedures. Asset managers and fund administrators alike are facing new challenges, opportunities and risks.
As additional regulations are anticipated this year, the industry is beginning to aggressively seek to defragment the technology, data and services most critical to improving business performance and reducing operational and reputational risk. At Confluence, we anticipate three factors will expedite this shift in 2015.
First, the saturated back-office technology market will need to undergo significant consolidation. The global financial crisis dramatically transformed the financial technology landscape, bringing about an unprecedented period of rapid regulatory change. This has required asset managers to adopt a more strategic approach to compliance in order to stay competitive in the long-run.
An industry survey that we conducted in September found that 94% of asset management professionals voiced concerns that manual processes in the back-office might impact their ability to control errors, which would be vital to regulatory compliance.
As a result of regulatory mandates for better risk management and greater transparency, technology vendors have been called upon to develop solutions faster and more frequently than in the years leading up to the recession. Newly implemented regulations that address individual asset classes or investment strategies, such as Aifmd for alternative investments, have led to single-function technology solutions that each address individual regulations.
While this has been positive for the industry, new solutions have flooded the market and now leave the financial technology landscape fragmented. Asset managers are becoming less willing to do business with single-solution providers preferring, rather, a more holistic approach to their technology infrastructure.
This push by the asset manager should lead to increased M&A activity among financial technology companies in the year ahead. According to AGC Partners, an investment bank that focuses on providing strategic advisory services to technology companies, the single-solution technology providers that cropped up in the wake of the financial crisis are becoming attractive acquisition targets for more established financial technology firms. In fact, the company's 2014 FinTech Update shows an uptick in acquisitions by companies like Morningstar, MSCI, and FactSet, has already begun.
In 2015, asset managers will begin to push back on the single-solution provider in favor of consolidation. In a survey that Confluence conducted in September 2014, four out of five asset management professionals whose firm uses multiple applications in the back office said that consolidating the technology would help their firm achieve higher operational efficiency. Nine out of 10 respondents said it was important for their firm to consolidate fund data into a common database. As the focus shifts to defragmenting back-office technology and fund data to reduce operational risk, the industry will lean on the vendor community to provide broader functionality through a single platform.
Another factor that will shift the industry's attention to the back-office is the importance of strong data and technology management. As this becomes more apparent, so too will the importance of the role of the chief data officer in the financial services C-suite.
Since the 2008 economic downturn, the asset management industry and its regulators have collected and analyzed vast amounts of data to better understand fund-level and market-wide risk. As the industry transitions in 2015 from data collection to data analysis, firms will look to leverage their available data as an asset, and the role of CDO will be among the most critical to the asset management industry.
CDOs will lead the charge to convert asset managers' rapidly expanding data assets into actionable business opportunities. Never before has the industry had such an available wealth of data. It is not enough, though, for firms to simply possess the data - asset managers who don't extract a competitive advantage from data will be left behind.
Going forward, CDOs will be tasked with driving business growth and profitability, because they offer what others cannot: the background and expertise necessary to seek out advantages that can be gathered from data analysis.
Another change is that fund administrators will have to move away from specialized service offerings that target a single type of fund manager.
Todd Moyer is executive vice president and global head of business development at Confluence.