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Ones and Zeros: How Asset Managers Can be Digital Transformation Heroes

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By Phil Davies, CTO of Milestone Group.

The pace of digital transformation in asset management has been referred to as glacial. However, this new decade comes at an inflection point – over the past couple of years, the discussion has picked up considerably with firms finally embracing the digital ecosystem. People have built up both confidence and understanding about how they can derive benefits from technology and the next few years will see asset managers dramatically improve their operational efficiency.

Although digitalisation is often just a buzzword, it’s been a journey of three parts and has spanned three decades. It started with digitisation in the 2000s, which saw the dematerialisation of artefacts into a digital format. Next came the exploratory digitalisation of the 2010s, where businesses started to identify processes which could be improved with modern technology. And now, we are in phase three; full digital transformation, which will see the implementation of improved processes which will change roles, costs structures and fundamentally disrupt the status quo.

However tempting phase three might sound, firms are wise not to run before they can walk. Successful transformation is underpinned by an infrastructure that delivers automation, supporting flexible operating models and incorporating new technologies. Technologies like AI might sound attractive, but the benefits cannot be realised without the right core systems and architecture in place.

Because of the siloed nature of funds architectures, interaction across different business lines is often very difficult. Currently, a typical investment firm employs a number of technology platforms and tools for a variety of specific functions, often disguising the use of spreadsheets to keep the auditors at bay. Recent analysis shows that some 40-50% of middle and back office effort is expended coordinating data movement across these solutions and keeping them in sync. And it’s not just resource – it’s also where 70% of operational risk lives.

Application architectures and connectivity need to be simplified. It’s an industry-wide problem which can be solved by applying a uniformed approach across all investment entities and how they interact with each other. Cloud technology is an extremely valuable enabler when it comes to creating an environment that can deliver the scalability and adaptability required to support this.

Fundamentally, all processes should derive from the same foundations and any party from across the business should be able to look into the unified infrastructure to answer the specific questions they have. Having an anchor point which houses all fund products and communicates across all business lines, from front to back office, can give a shared view of all transactions for all fund and investment types across all jurisdictions. This will provide insight into operational efficiencies and create an environment where it’s safe to deploy new technology.

Once a platform architecture is established, automation must be applied in an intelligent way. The current challenge occurs where fund product structures and transaction processes have become so complex that it has become difficult for some firms to manage with their existing functional components.

It’s a compounding of long-terms problems that has created a brittle and labour-intensive operating environment. Most of the technologies used by funds including RPA are capable up to a point, but you typically can’t ask these platforms and tools to do much outside of what they were originally designed to do. s. The application of new technology needs to result in a simpler, more dynamic environment capable of catering for change as a functional outcome.

Investment platforms will become progressively more autonomous, pulling in support from an operator when unsolvable problems occur. In this day and age, software should be able run its functions independently, knowing what needs to happen and when. Over the next few years, a key attribute of digital transformation will be the shift from a model where people are helped by technology do their job, to one where technology is helped by people to do its job. Increasingly, a platform will need to be self-aware and self-analytical, recording progress and asking questions.

Ultimately, operational production infrastructure is the backbone upon which these new technologies are deployed. While there are many new and exciting technologies promising significant opportunities, firms need to focus on tangible measurement of operational outcomes. There has been significant experimentation with new technologies over recent years and there are already leaders emerging, but the next few years will be decisive. The digital journey will reveal opportunities, and the link between technology and business outcomes will see the emergence of clear winners as change becomes more rapid.

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