Fund management companies are increasing budgets for technology to reinvent and differentiate themselves, according to a report by London-based market research firm Datamonitor.

Datamonitor, which expects front office technology spending to top $3.4 billion by 2012, says fund managers are making creative use of technology in the areas of outsourcing fund marketing functions and developing online portfolio distribution channels.

Part of the reason for turning to technology is the downturn in the financial markets worldwide in the early 2000s, which led to a decline in global assets under management, says Amit Shah, a London-based financial services technology analyst at Datamonitor.

That caused the industry to suddenly shift from a high-growth to a low-growth environment forcing fund managers to become more mature in the management of their business in a very short space of time, Shah adds. ôIn a changing market, asset managers are looking to make effective strategic investments in technology to assist them to enhance their product offerings.ö

Fund management companies are finding themselves ôdelicately balancedö between expanding their product set and performance statistics to boost revenues and maintaining operational efficiency at a time of downward pressure on existing margins, Datamonitor says.

This is happening while regulatory bodies are examining existing compliance measures in a bid to further provide security and transparency for investors, the relationship between investment firms and third party distributors is under constant scrutiny, and investors are demanding new products that have the potential to provide superior returns.

The most successful players in the market will be fund management companies that choose to focus on satisfying client needs through advanced technological solutions that integrate real-time performance and risk information into the investment decision making process, Datamonitor says. These market leaders will use alpha opportunities and combine these strategies with customised client-based solutions based on return objectives, risk and time horizons.