There is much talk in the industry about the headwinds asset managers face today. High interest rates, sticky inflation, and fee compression are among the challenges impeding growth and threatening many firms.
Research from PWC projects that by 2027, 16 percent of asset and wealth management firms will have been acquired or fallen by the wayside – twice the historical turnover rate.
For my team and I, these data points are more than just numbers; they represent the real-world experience of the investment professionals we work with daily.
But the news isn't all bad. In this post, I share insights on how some asset managers are adapting to these market challenges by improving strategies and operations and making the most of their organization's resources.
Expanding Asset Classes to Meet Investor Mandates and Gain Basis Points
In the past, asset managers hitched their wagons to more straightforward long-only strategies to generate portfolio alpha. This focus on growth worked well at the time, helping firms produce positive returns for clients like governments, insurance companies, or pension funds.
But today, these strategies cannot always be counted on to deliver the return asset managers need.
As a result, these firms — many of which are longstanding and established — look to other types of investments to try to differentiate and compensate. These traditional firms are now rethinking their recipe: What's our mix? What reduces our risk but generates alpha? How can we meet our mandate?
Today, fixed income is a much higher proportion of firms' books, including fixed-income derivatives and treasury products. We are also beginning to see once-traditional asset managers begin to consider a heavier presence in private markets.
While these assets provide opportunity, they also require a more efficient way to trade and manage them. The operating model that was ideal for a long-only equity-heavy strategy will not be the same operating model that leads to success in a multi-asset-class, multi-strategy paradigm. If a firm’s current system cannot support a fully automated end-to-end workflow, adding additional asset classes can introduce new, labor-intensive processes and increase operation costs that risk canceling out any gains.
Ensuring a firm has the right technology and service partner to manage the operational complexities of broadened exposure could be key to gaining valuable basis points and outperforming the competition.
Learn how to maintain efficiency throughout asset class diversification.
Outsourcing and Automating Key Functions to Gain Efficiency
The job of a fund manager comes down to one thing: take the client agreement or mandate and make it a reality. In the past, managers could achieve this goal while being conservative in their investments and enjoying more flexibility in other parts of their businesses.
But today, in addition to expanding their range of investments, meeting these commitments puts pressure on managers to work smarter and faster.
We talk to many asset managers seeking to grow their businesses and raise more capital. Instead of hiring more employees to manage that growth, they are keeping their organizations lean by hiring a vendor to manage critical functions like compliance, operations, and downstream flow.
By outsourcing functions, asset managers can free themselves from the burden of many operational aspects of their business, enabling them to concentrate on delivering on their core value chain to meet client commitments.
Automation also plays a vital role when it comes to speed. The recent implementation of T+1 in the US helps the market gain efficiencies and increase liquidity. As the industry talks about a 0-day settlement, it’s clear that making these faster settlements a reality will require fewer human decisions through custody.
Learn how firms are enhancing operational efficiencies and improving their bottom line.
Leveraging Data to Stay Ahead of Market Changes and Drive Decision-Making
As economic and investment models shift, asset managers need to be on top of these changes, watching them closely. To focus on the art and science of what they do, they need to be able to access and act on data quickly and be able to see it no matter where it's generated.
In the past, the ability of a portfolio manager to load and model a benchmark with real-time PnL was enough.
But now, firms also want to see ex-ante risk, portfolio, and performance data – and they want to see it all in one dashboard.
But that's not all. They also want to risk-optimize their portfolio, load that data into the OMS, and let other people handle the execution piece.
A few years ago, we would have referred to the work required to meet such demands as "integrations," breaking down and connecting data and technological silos. But today, some innovative solution providers have moved past that with a vision of creating a complete data ecosystem that cleans up disparate data and brings it together efficiently, enabling users to act on that information. In this type of ecosystem, it doesn't matter where data is generated; it’s accessible and usable from anywhere in the system.
Working with a Customer-First Organization to Deepen Firm Insights
Today, firms want a technology and service provider who can provide insight not only into technology but also into the problem itself.
Building a team that can provide that level of insight requires an organization to prioritize its clients. This client focus isn't just marketing speak; being a client-first organization means taking a consultive approach to relationships with users.
In a client-first organization, salespeople are not just sales enablers; they are deeply invested in the success of users and potential users. This level of empathy and commitment means firms have a true ally helping them succeed.
Moreover, these customer-centric teams have experience working with hundreds of other firms, consultants, and leaders in the industry. They bring the wisdom and knowledge gleaned from each of these interactions to each user they work with.
For example, at SS&C, the team supporting Eze EMS has been on more trading floors than any trader likely ever will. They know what's out there and how best to handle it.
As asset managers tap into this knowledge, it sometimes leads to an understanding of how technology can help them with the challenges of their firm. At other times, it’s clear that the firm doesn't need new technology, just consultative support on how best to utilize their existing technology to overcome the challenges they face.
SS&C: Your Partner in Transformation
As PWC noted in their research, asset managers have traditionally been rewarded for their stability in terms of investment performance and consistency of talent and operations. But today, as market headwinds continue, transformation is critical to their survival.
The SS&C team is uniquely prepared to help firms adapt to changing times. We have helped over 1,900 firms get the most out of their investment operations. Our tenured service and support teams bring the value of that perspective and experience to each client we work with. Their expertise, combined with our feature-rich SS&C Eze solutions, enables asset managers to face this market and prepare for what lies ahead.
Dive deeper into the headwinds facing asset managers and the tactics firms are using to forge a path in times of uncertainty in this ebook. Or learn how our industry-leading technology and service can help your firm optimize its operations; contact us.
