Any asset owners and managers previously unaware of how crucial technology is becoming to maintaining an investment edge have been enlightened in brutal fashion by the coronavirus lockdown.
Spending was already rising on systems and tools to manage portfolios, data, risk, compliance, operations – you name it. It is only accelerating now as the benefits of technology – such as faster data accessibility and stronger digital integration within and between institutions – have been thrown into sharp relief.
“If data was the latest big step-up in investment technology spend and focus, connectivity is next on the table for the coming few years,” a technology specialist at a Southeast Asian sovereign wealth fund said on condition of anonymity.
He pointed to two broad categories. One is creating an open application programming interface (API) between organisations so that information can be easily transmitted between, say, custodian and asset owner or asset manager. The other is improving internal connectivity to ensure that, for instance, an equity portfolio manager can make use of a data licence held by his fixed income colleague.
“We’re in the early stages of this [increased focus on connectivity],” he told AsianInvestor, “but the focus is only going to increase.”
MORE INTEGRATED PORTFOLIOS
After all, institutional investors’ portfolios are becoming more integrated and less siloed, in terms of both asset classes and geographies – which in turn impacts how asset managers operate their own platforms.
Sachs Asset Management
“Today you can be a global investor in Singapore as easily as you can sit in New York,” said Sheila Patel, chairman of Goldman Sachs Asset Management. “That’s in part because of advancements in technology, but also because the business opportunity set has become more global.”
“The reality of globalisation has made interconnectedness essential," Patel added. “The way that asset managers [and to an extent some asset owners] think about their investment team structure… has become much more integrated. In part because tech has made it easier to share data, people can work on it more fluidly together, pass portfolios around the world more easily.”
Such international integration helps with understanding of the networks that drive certain industries or businesses, she said. That’s important given, for instance, the increased focus on supply chain security as a result of Covid-19 and global tensions.
“It’s one thing to sit in New York and think you understand global supply chains,” Patel noted. “But it gives you valuable information to work with a portfolio manager colleague in Asia who knows exactly how those supply chains work in China, Vietnam, around the region. The collaboration opportunities with investors in Asia and their global colleagues have grown tremendously.”
Investment technology providers are certainly recognising the importance of allowing an open connectivity ecosystem.
US fund management giant BlackRock is progressing a “big initiative to connect different industries via [its portfolio management system] Aladdin, and that’s going to continue to the next five years”, said Akiyoshi Takeuchi, Asia-Pacific head of BlackRock Solutions.
This includes providing the platform to asset servicing firms so that they connect better with asset managers and asset owners and improve efficiency in trade confirmations and reconciliations, he told AsianInvestor.
Moreover, it has been opening up Aladdin to allow users to do their own development and customisation of the system via what it calls 'Aladdin Studio'.
Others take a similar view. “The ecosystem world is going to win, and the successful partners there will be those who can open up platforms and architecture," said Oliver Johnson, Asia-Pacific head at Danish tech vendor SimCorp.
Indeed, Louisa Roberts, Singapore-based senior business development director at SimCorp, told AsianInvestor: “We’re not possessive of the space we play in. It’s inevitable that fantastic new risk models may emerge from small players, and we need to have a platform to engage with those players and allow others to plug into it, to benefit asset managers and asset owners.”
OPERATING MODEL REVIEW
Similarly, asset managers – and to a lesser extent asset owners – are putting more focus on their operating models and use of service providers these days, particularly in light of the coronavirus pandemic.
Johnson said that SimCorp’s clients had been looking at their operating models post-Covid and prioritising different areas they think will give them a competitive edge, with a focus on the digital aspect. “As an example, we’re seeing a lot more interest in things like client reporting, given how everybody’s more remote [now].”
Consulting firm EY is seeing a similar development. It conducted an interactive webinar with asset managers in June with more than 500 attendees, and their “number one priority was operating model review”, said Mark Wightman, Hong Kong-based wealth and asset management leader for Asia-Pacific at EY. That covers areas including rationalisation data and tech providers, operational efficiency and end-to-end digitisation of platforms, he told AsianInvestor.
This is part of an AsianInvestor series of articles on investment technology.