Three trends in investment operations for the new digital era

Asset managers have been focused in the past mainly on driving scale and efficiencies into their investment operations. Now, many firms are turning to a new playbook. Its priorities? Using digital as the engine to enhance revenue, client centricity and market share. And doing this successfully requires firms to embrace a new way of working and thinking about investment operations.

In this blog I want to highlight the three main areas of investment operations where we’re seeing firms embrace change.

1. Modernization of neglected assets and products

Historically, manual processing has been the norm for some complex asset and product types such as OTC derivatives. The complexity of these assets means they typically fall outside the industrial-strength, scalable models supporting the more standard assets. But that’s changing now as technology evolves, enabling new operational capabilities to support these products.

Modernizing operations for these assets and product types by using scalable technology solutions for key functions and process optimization can not only drive cost reduction but also provides firms with the time to focus on value-generating activities. This is especially important as operations teams struggle to keep pace with the rapid evolution of product and investment strategies that we are seeing at clients today.

2. Focus on investment services and intelligence

Investment operations are moving toward service-based and value-driven practices utilizing maturing innovative digital solutions. We see this focus becoming especially prominent in the middle office, with investment management being a primary internal consumer of market intelligence/portfolio analytics.

There are also two key areas emerging where service-based operations can provide value to the front office.

• Portfolio analytics: Soon, customized and innovative investment capabilities, like separately managed accounts (SMAs), could become the norm, highlighting the demand for real-time insights into individual portfolio behaviors. As a result, investment operations teams’ analysis would need to expand from single portfolios to broader regional, strategy, client and/or enterprise holdings. Operations teams would need both the technology to enable this and the capital markets talent and expertise to bring it to life.
• Market intelligence: Today, operations teams are coordinating requests from investment management, but they’re doing so in silos. So, there is a need for an already emerging “focus on service” that could play a critical role in enabling better coordination, faster turnaround and a more seamless experience for internal consumers. For example, if investment management requires advice to understand foreign exchange (FX) arrangements in target markets, ‘investment services’ could be able to contribute broad-based market knowledge, liaise directly with industry partners and provide timely insights to the front office.

3. Increasing understanding and interactions with both internal and external clients

Increasingly, we’re seeing investment operations teams facing off directly with institutional clients and internal sales teams – not just at the leadership level, but also through to functional management. The drivers? Client requests and internal sales teams seeking to broaden their organization-wide understanding of clients.

Though investor interaction by investment operations teams was already emerging before 2020, COVID-19 accelerated this trend. Looking ahead, what began with a focus on resilience could evolve into an effort of building better relationships.

We’re also seeing these interactions increasingly happening with internal teams across sales, marketing and product strategy. As a result, these new, two-way partnerships across the organization are providing benefits for:

1. Business case development: Proactive definition of cost and operating model implications arising from client requests/customization.
2. Data-driven client strategy: Increased portfolio/performance data availability to sales, marketing and product strategy to supplement client analytics.
3. Client understanding: A deeper knowledge of the institutional client base, product strategy and macro retail client base across the organization.

The shift: Investment operations moving to a digital and client-centric era

Technology, data and scalability will enable investment operations’ new service-focused, client-centric operating model. As teams face up to this era of perpetual reinvention, they ultimately need to understand that the best way to prepare for the future is to create it. Thus, operations leaders who are acting to reshape, reinvent and evolve their operations may be better placed in the long run.

Learn more about other 2021 trends we are seeing in asset management. If you’d like to talk about your own operations innovation journey or discuss any ideas you might have around digital, please reach out. I’d love to hear from you.