As investment managers look for direction in this changing market, many find their compasses spinning.
Today’s headwinds come from various sources, including persistent inflation, higher interest rates, and geopolitical uncertainty.
To navigate this evolving market, many managers are implementing a range of new approaches: from asset class diversification and cost rationalization to leveraging new data sources and managed services. These strategies help firms as they seek new ways to achieve operational alpha and confront these headwinds.
1. Reduced Revenue Has Firms Rationalizing Costs
The Deloitte Center for Financial Services 2024 Investment Management Outlook Survey reports that revenue at many investment firms is expected to drop this year.
The Deloitte survey finds that only 10 percent of respondents said they expect significantly better revenue prospects, compared to 20 percent who said so last year. Furthermore, the percentage of respondents who expect significantly worse revenue prospects in the next year more than doubled year over year.
While revenue is down, firms' fixed costs have remained the same. In response, many firms are prioritizing cost rationalization in their operations.
2. Changing Market and Investor Preferences Lead to Asset and Strategy Diversification
As interest rates and uncertainty remain elevated, managers continue to expand asset classes to grow their offerings, attract new clients, and generate a better ROI.
As a result, there is continued growth in fixed-income investments, particularly those in the municipal bond and high-yield spaces, which offer the potential for attractive returns in a high-rate environment and increased stability.
Demand for low-cost ETFs is also on the rise. Morningstar reported that last year, investors put $131 billion into ETFs, a new annual record. Today, many investment managers are offering their own ETFs to capture their share of this growing market.
In addition, Nasdaq reported that a combination of technology and changing investor preferences is resulting in the growth of Separately Managed Accounts (SMAs). They report that total assets under management in SMAs is projected to grow by 15 percent this year, exceeding $2 trillion in assets.
As firms diversify, they often struggle with the technology needed to support that asset class. Many firms adopt new technology, while some attempt to leverage existing technology that isn’t built for the new strategy. This results in a patchwork approach that doesn’t connect to the other tech stacks in a firm’s operation.
These siloed platforms can hinder efficiency and limit the potential benefits of these tools and the investments they support.
3. Increased Use of Data Drives Firms’ Decisions
According to BNY Mellon, increased reliance on data and analytics is a top trend for the next 3‑5 years by both asset managers and asset owners.
BNY Mellon reports that while integrating data sources and improving transparency is a top priority, firms are challenged by the complexity of managing data and its applications.
Many firms don't have the resources or infrastructure needed to dive headfirst into the data opportunity. That's why many firms are investing in their own data solutions and vendors to normalize data processing and better harness the power of real-time information in their investment strategies.
We launched the Genesis Platform earlier this year to meet this need. Powered by a modern data platform and powerful technologies, the Genesis Platform ensures our users have a unified data experience across the organization.
4. Market Pressures Put New Focus on Managed and Strategic Services
As investment managers seek support in this changing market, many leverage their vendor’s managed and strategic services to offload part of their operations.
BNY Mellon research shows that almost half of asset managers and 40 percent of asset owners are assessing the need for additional outsourcing to support their operating models.
From our experience, the numbers are even higher. Close to 90 percent of clients that choose to partner with us use managed services, and almost 40 percent of our current investment management clients have some form of managed service. More and more investment managers are leveraging managed services to extend their capacity and add capabilities across technologies and operational functions.
By leveraging a managed services provider, firms can focus on higher-priority activities. Moreover, outsourcing helps to fill the gap many investment managers face in finding skilled employees to perform these functions in-house.
Connecting Your Investment Experience to Support Current and Future Market Trends
Meeting the headwinds of today’s markets means investment managers are demanding more from their financial technology.
Separate tech stacks, diverse data sets, and manual processes impede the revenue and alpha goals managers need to achieve.
Instead, firms need to take a holistic approach to technology, configuring a seamless technology platform that scales as their firms’ and the market’s needs evolve.
SS&C provides more than 1,500 global investment managers with solutions purpose-built for their business requirements.
To see how SS&C technology can help enable operational alpha at your investment management firm, contact us.
Dive deeper into today’s market conditions and opportunities and the tactics firms are using to forge a path in times of uncertainty. Download our new State of the Investment Industry eBook.
