John considers what asset managers really mean when they talk about digital or technological transformation projects.
A few common themes run through the technology part of asset management: mounting regulations, data management, and the transformation project. The latter is a symptom of a constantly changing world, wherein what’s old is inefficient and needs to be replaced, especially when it comes to technology.
The way these transformation projects are now discussed makes it seem like the firm, and more importantly, those tasked with the actual work, are embarking on an epic quest normally found in Peter Jackson movies.
The reality is very different: It is months and even years of intricate planning, in-depth discussions and architecture analysis evaluating what works and what doesn’t, conversations with numerous vendors that pitch that latest and greatest solutions—all before any actual implementation even begins.
Implementation is the heart of the transformation process. The term is now being used as an almost catch-all moniker for projects whereby new tech is implemented in place of legacy systems, and while there is nothing wrong with that, it adds an unnecessary degree of grandeur.
Like their counterparts in institutional banking, many asset managers across the globe are reviewing their internal technology infrastructures looking for weaknesses in light of more volatile trading conditions, higher expectations from investors, and the biggest driver of them all, increasing regulatory demands. The other part of the technology transformation is that it’s a sweeping term.
Unsurprisingly, the back and middle offices are most often the subjects of these projects.
Take, for example, the implementation of a new data management tool or regulatory reporting module. It is self-contained and simple, there’s no “wow factor” involved—it is the bread and butter of the IT department. But, if that implementation is part of a wider transformation project, suddenly it takes on a completely new significance: It is part of something much bigger than itself—the precursor to a fundamental change in the way the business approaches both future challenges and opportunities.
Back in Focus
Unsurprisingly, the back and middle offices are most often the subjects of these projects. Whereas a front-office implementation is relatively straightforward, it is a very different matter to redefine an area that has historically been siloed or is no longer fit-for-purpose in a marketplace that is experiencing constant regulatory change. In a survey of 192 asset managers conducted in September by investment data management provider Confluence, 61 percent of respondents listed back-office automation as a priority for the next two years, while 57 percent of those that utilize third-party solutions said that further consolidation is required in order to streamline regulatory and investor reporting.
It’s a safe bet that many of those respondents taking a closer look at back-office automation will consider a back-office transformation project of their own in an effort to bring regulatory reporting capabilities up to scratch. The benefit of consolidation is that while ripping out much of the back-office will still be a pain, what is put in its place should be much easier to implement and manage. It’s not just the systems that are involved in these transformation projects though. Often it’s heralded with the arrival of a new C-level executive to spearhead or take responsibility for the project (the General, if you will), while the foot soldiers are also given new methodologies to work with.
Agile development is one of the most popular ways of achieving this and buy-side firms from the boutiques to the multi-nationals are embracing this methodology. Its benefits should be well-known at this point and while there are some detractors, there are variations on the theme that allow for even greater levels of flexibility to be introduced.
When all is said and done, by which I mean the actual transformation project itself, what really counts is whatever new system(s) and working methodologies implemented have been put in place correctly and are ready to handle whatever the firm’s trading activities can throw at them. It might sound cynical but the majority of transformation projects are a series of implementations aimed at bringing legacy systems, and asset managers in general, up to date. It might be the start of a bright new future, but let’s not get sucked into the hype.
The founder and CEO of Imperative Execution looks at how trade execution is changing and what that means for the buy side.Subscribe to Weekly Wrap emails