Future-proofing is a buzzword that gets thrown around a lot in the asset management industry, referring to asset managers’ operating models and their investment management systems and processes. The term is often overused (and misused), which can make the concept feel vague. However, in this article, we clear up the confusion around the concept and outline the key factors that help asset managers to future-proof their investment management platform.
A platform or system that is truly future-proof would be able to predict the future and be designed today for all future needs. But since no one can know the future (otherwise we would all be beating our benchmark, right?), this might feel like a fruitless endeavour. The good news is that there are ways to either minimise the impact of unknown changes in the future or make sure you can adapt as quickly and cost-effectively as possible.
Let’s dig into different ways that this can be achieved with your existing investment management platform or with a new system you choose if you’re seeking a new solution or planning a digital transformation project.
Your asset management business will develop and evolve, and so will the environment you operate in. There might be new investment strategies launched, new portfolio compliance requirements to pay attention to, and so on. Future-proofing systems and staying nimble in an ever-changing industry can be the difference between short-term success and long-term growth. This in essence encapsulates what future-proofing refers to. It’s not about anticipating the future – it’s about making sure that when the future surprises us or opportunities arise, we can adapt quickly.
A 2022 Deloitte survey affirmed that 27% of asset managers surveyed did not believe that data within their organisation was sufficient to support their business needs. This demonstrates the need for firms to develop and enhance their investment management platforms to meet existing and future requirements.
The rise of cloud-native technologies has not only enabled lower total cost of ownership and reduction in operational risk – it also increases your ability to future-proof your vendor landscape.
With zero IT-footprint and API connectivity, swapping out vendors will only become easier and cheaper by the year. Furthermore, cloud-native solutions are also able to adapt and move faster, delivering new functionality faster.
Being cloud-native is not a magic cure to future-proofing your investment management platform, order management system, or investment book of records. There are multiple other aspects that dictate if a vendor will enable you to adapt quickly or hold you back. Note that any specific IMS, OMS or IBOR vendor might fall in a mix of categories and modern doesn’t mean ”better”, it’s (unfortunately) always a tradeoff
So, what are the key considerations to help asset managers future-proof their investment management platform?
One key question to ask yourself is; will you have a vendor or partnership relationship with the provider you chose? Both options have their pros and cons and most vendors will clearly fall into one category or the other.
Pro tip: A quick but effective way to check which category a vendor falls into is to ask them to provide references of clients similar in size to you, where they have delivered repeatedly on requests by the client.
When observing their clients, vendors will consider what requests are being posed by most clients and usually give more weight to the larger and high-paying clients. This means that the enhancements delivered will be “best practices”. However, your individual needs are unlikely to be even considered.
A partnership means that your individual needs will always be considered by the vendor. The vendor will have processes in place to deliver a solution that is as tailored as possible.
An off-the-self IMS literally means that – “what you see is what you get”, i.e. a solution built to be operated in a certain way and you have to adapt your workflows and processes to fit the system. For example, compliance rules might be hard coded, upgrade cycles are dictated by the vendor, import/export jobs can not be configured, security master is bundled and data sources aren’t optional. This sounds negative, but it might not be, usually this translates into a faster and more cost-effective implementation. However, Total cost of ownership (TCO) might be higher than for enterprise solutions.
An enterprise investment management platform is designed to be adaptable – through configuration and/or customisation – to fit your workflows and processes. For example, compliance rules are configurable, upgrades come in multiple cycles, import/export jobs can be managed by users, security master is open and data sources can be connected via API. As a result, an enterprise solution is built to fit within an existing ecosystem of solutions and service providers without imposing unnecessary change. This enables you to future-proof your systems and adapt them to both your current and future needs.
Pro tip: To make an educated guess which category a vendor falls into, check the number of clients they have. If it’s below 200, they are likely an enterprise solution and vice versa.
To be able to adapt as quickly as possible, the right technology architecture is critical. This means using microservices, leveraging open-source, building the system API-first and so on. Essentially, you must engineer the entire investment management platform for agility and change.
Front-to-middle office vendors have amassed a lot of technical debt. Their solutions simply aren’t possible to change quickly, which hurts clients – causing them to become less agile. The way such vendors address this concern is by being very feature rich, essentially claiming all the functionality a client might need already exists. This might well be true today, but no one can know and predict what is required tomorrow, therefore making future-proofing technology a challenge.
Some solutions are designed to be closed. The original idea for the iPhone was to have only apps developed by Apple. There are order management systems, IBORs and IMS solutions like this. The benefit is a controlled experience. However, the price paid is very high for clients, as it means being completely in the hands of one vendor. More importantly, it means firms’ flexibility to design and develop an ecosystem of service providers, systems, etc. is severely impaired.
The opposite is true of an investment management platform with an open architecture that is designed API-first – i.e. offers two-way, real-time connectivity to any system. Some systems even offer configurable import/export engines to allow business users, as opposed to developers, to configure and manage integrations. This allows for a fast and cost-effective approach as the ecosystem evolves over time.
At Limina, we develop, deliver and service a cloud-native front-to-middle office solution. We deliberately chose an approach in all four of the different future-proofing areas mentioned above. Here are our choices and why we picked what we did:
As you can see, seeking to future-proof technology is vital to determine your organisational success, now and in the future. In an ever-changing industry, having an agile investment management platform that can adapt quickly can be the difference between short-term success and long-term growth. Therefore, thinking forward and selecting a system that will be adaptable to your firm’s changing needs is imperative.
If you’d like to learn more about the key considerations for selecting a flexible and scalable investment management platform for your business, contact our experienced team and explore the benefits of Limina’s Investment Management Platform.