Asset owners and fund managers across Asia have found one consequence of the Covid-19 pandemic to be a rising need to more quickly implement technology solutions, as they seek to better streamline and aggregate their investment model to better minimise investment risk. The coming introduction of the IFRS 9 and 17 accounting standards are only likely to accelerate this embrace.
A tech specialist at a Southeast Asian sovereign wealth fund told AsianInvestor that his organisation has conducted several technology-driven themes from the pandemic within the organisation. Of these, cloud-based software "certainly helps protect any technical faults" and thereby reduces investment risks.
It’s not the only one. Australia’s Future Fund, another sovereign wealth fund, has also looked to utilise more technology to improve data analysis and sharing to support its total portfolio approach. Sue Brake, deputy chief investment officer of portfolio strategy at Future Fund, previously said in a webinar hosted by AsianInvestor that the unprecedented market volatility of the pandemic had been a "good test" to Future Fund’s commitment to a this holistic investment strategy, as it requires strong risk management.
Increasingly, institutional investors across Asia are looking at their service providers to "seamlessly integrate and process data to enable them to store and access all their data — whether accounting, sales and marketing, advisory — in one place”, said Mathew Kathayanat, head of product and strategy for Asia Pacific in the asset servicing division at custodian BNY Mellon.
"Asset owners realise that they need to operate with the skill and agility of a fintech," he added.
Key aims of the focus on tech is to improve data analysis to both identify better investment possibilities, and to reduce overall portfolio risk. To date the results have been mixed. The unnamed SWF tech specialist said it's unclear whether the tech solutions the organisation adopted have improved investment returns.
"I don't think enough time has elapsed to say that there's a definitive correlation [between using tech solutions and returns]," he noted.
VARYING LEVELS OF ENTHUSIASM
The specific tech needs of institutional investors varies, based upon how much they have already applied technology in their operations. However, service providers say Australian asset owners are among the most enlightened.
“The Australian asset owners are certainly at the forefront of the drive for innovation,” said Hong Kong-based Robin Francis, Asia Pacific head of product development and strategy for custody and fund services at Citi. He should know; Citi is employed by several regional public sector investors, pension funds and insurers to conduct custody and fund administration.
Future Fund, for example, has focused on rolling out a technology plan over the past three years to improve its data management capacity and tech support for the investment teams.
Asset owners in Singapore have also increasingly sought to use tech strategies for investment operations, after the city state spurred local fintech development in recent years.
“Our first reporting API [application programming interface] that we set up in the region was with a Singaporean client,” said Francis. He added that, at the time, the investors had already engaged with multiple providers, and was contracting Citi to build an API that connects those platforms.
But the adoption rate varies from individual investor to another. A senior investment executive at mid-sized Singapore-based asset owner told AsianInvestor that his firm has largely focused on using teleconferencing tools to reduce travelling after Covid-19 hit.
He said that larger asset owners and banks with better resources would be earlier adopters of tech solutions, while small to medium-sized investors usually depend more on their custodians or prime brokers.
DRIVE FOR EFFICIENCY
There are many reasons asset owners are reluctant to upgrade their tech solutions. The initial cost is expensive, often requiring millions of dollars. It also can disrupt systems and personnel and need retraining.
However, increasingly there are pressing reasons for more mid- and large-sized investors across the region to need to adopt data consolidation technologies.
"For investment activities, [data consolidation] is not so important, but to risk and exposure management, and compliance for safeguarding our investment activities, it's very important," the sovereign wealth fund tech specialist said.
"Being able to calculate across the entire book, what kind of names and currency exposure we have regardless of what asset class we are invested in, that's really important," he added.
In particular, many asset owners will need to introduce the looming new accounting regulations, IFRS 9 and IFRS 17.
The IFRS 9 rules, which will replace IFRS 39 and introduce full mark-to-market treatment for assets – which will require systems capable of assessing their value each day. Meanwhile, IFRS 17 will require insurers to have better asset-liability duration matching.
While the International Accounting Standards Board has deferred the effective date of IFRS 17 for investors across the world to the beginning of 2023, the shifts in how insurers will report their investments and financials are inevitable.
“Consolidation of data, particularly for IFRS 9 and IFRS 17 reporting, [and] the need for insurance companies to be able to create a consolidated book of records is [increasingly] important,” said Francis.
“What we have seen is a clear drive among the large asset owners for efficiency in the last two years, [although] not all are at the same stage in the evolution,” he added.
Increasingly the need to cut costs, reduce risks and consolidate data looks set to help spur asset owners to invest in data solutions to more efficiently help them do so.