Four Asset Management Challenges for 2022

As we embark upon 2022 we share four common themes emerging from our clients that will be keeping us occupied in the area of operations and technology. These challenges are driven by the need for greater efficiencies, investment diversification, regulatory demands and scalability.

Private Markets

Growing private markets allocations are increasingly challenging the operating models of asset managers and asset owners. We expect to see strong activity in 2022 with operating models having to evolve appropriately to efficiently support this growth – including sourcing specialist resources.

In line with the wider industry, the volume and complexity of data requirements are growing exponentially, for example in SFDR in the ESG space. Firms need to ensure they have a scalable data operating model in place. Technology has to keep up and we see an evolving landscape with increasingly holistic and flexible solutions available. Providers are investing into the private markets space and asset managers are increasingly considering front-to-back platforms offering coverage across both public and private markets. Offerings such as eFront Whole Portfolio and State Street Alpha are becoming of greater interest to the sector.

For 2022, we expect this consolidation of servicing across multiple asset classes to continue, with provider technology needing to address the complex data and functional challenges in a holistic manner. We will continue to guide our clients through this evolving landscape.

ESG

Regulatory requirements, such as the roll-out of SFDR Level 2 and the UK Government stipulating TCFD-aligned reporting, are increasing the need for ESG data. Firms must ensure their data models are robust, scalable and flexible, to handle this rise while appropriately aggregating and mapping the data to all areas of their businesses.

Private markets ESG data is now within regulatory scope, meaning firms will need resources to extract these less transparent data sets internally; or to work with their service/data providers to build out their data sets.

Regulators, including the FCA, are considering bringing ESG data providers under scrutiny to drive standardisation and reduce greenwashing – likely resulting in firms having to demonstrate diligent selection criteria and processes for their providers as well as ongoing monitoring.

Davies has undertaken significant ESG data assignments with clients and expect this to evolve as ESG data sources on technology solutions mature.

Data Efficiencies and Snowflake

Snowflake has risen in prominence across the investment management industry to support processes that require large volumes of disparate data. This trend is certain to continue in 2022. This is fuelled in part by the opportunities that it presents the industry: the Snowflake Marketplace; its extremely flexible elastic compute and storage and the low cost of entry – Snowflake’s pricing and usage structure allows firms to start small and explore its capabilities without a large capital outlay or long-term commitment.

Several use cases for Snowflake are emerging including the aggregation of company-managed and third-party data; data publication to clients and as a data migration medium. One notable example is the consumption and manipulation of ESG data which is accelerated by transforming data acquisition, dramatically reducing the time and cost to implement. Many data providers are also recognising the power of publishing data to the Snowflake Marketplace and as additional industry participants – service providers, data providers, investment managers and institutional asset owners – enter the ecosystem this creates a snowball effect (excuse our pun), further enhancing the demand and opportunities.

Davies is supporting clients with proof-of-concept exercises to demonstrate the opportunities that Snowflake presents and help build business cases for implementation.

Operating Model Efficiencies

Like a well-known friend, the strategic optimisation of the operating model remains a core focus for the asset management sector, with a continued drive for efficiency and front-to-back harmonisation. Approaches include:

• Rationalising the technology landscape – decommissioning legacy systems, reducing the number of manual processes and overall operational risk, either through outsourcing or new system selections.
• Maximising data efficiency and a cost-effective strategy amidst the push-pull dynamic between timeliness and accuracy. The holy grail is establishing a “golden source” book of record, reducing friction and the need for reconciliations between IBOR, ABOR and increasingly TBOR and PBOR.
• Reaching a level of scalability that supports a wide range of investment instruments and volumes, alongside multi-asset, private markets, and high degrees of client-driven product customisation, allowing managers to reduce time-to-market without detriment to cost-to-income ratios.
• Making effective use of service providers who increasingly offer plug-and-play services. We have seen many partnerships established with a range of front office and data management vendors in 2021, with the potential for more exciting combinations.
• Optimising the global operating model, balancing the aspects of required skillsets and costs when selecting near- and off-shore service locations.
• Improving client experience through effective use of digitalisation.
• Building and reviewing internal frameworks to comply with new regulatory rules such as Operational Resilience for asset managers serving UK investors, with many firms still working to meet the FCA’s requirements by the March deadline. We see clients use this as a bigger opportunity to review their Operating Model resilience.

Davies is currently running a number of front-to-back target operating model reviews, advising asset managers across all areas of the investment management lifecycle in a global setting.

Our own new chapter

Davies is excited to start 2022 as part of the Davies Group. We look forward to bringing our enhanced capabilities to assignments to the further benefit of our clients.  We would like to thank you for your continued support and readership throughout the past 12 months. We invite you to keep an eye out as we explore each of the above themes (and more) in upcoming news and articles.

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