In today’s interview, Dermot Shortt, FINBOURNE Chairman and Rebecca Ross in our Marketing team sit down with Olivia Vinden, Alpha FMC’s Head of Fintech and Innovation. We discuss automation, how buyside firms are using data analytics in distribution as well as their investment processes and why ecosystems are so important today.
Becca: What are the biggest trends impacting asset managers right now?
The macro environment, regulatory change, the growth in AUM and changing customer demand as different customers become more digitised are all impacting the industry. In the new post-Covid landscape, we’re seeing an increased focus on cost; firms may have less budget for innovation projects for their own sake and everything will be focused on whether an activity gets new AUM through the door or reduces cost. We’re likely to see less experimental activity where there isn’t a proven case for increasing AUM or reducing cost. For fintech companies, the most important thing is to be part of an ecosystem. If you can be part of an ecosystem, e.g. part of an existing provider that connects to you or plug into another one, that’s a direct way to get access to lots of clients.
Becca: In what ways is the buyside using technology to solve some of those challenges?
We’ve seen a big trend over the last 10 years as firms move towards more enterprise-wide solutions; people want one toolkit across their whole environment. There are lots of solutions that let you do that for investment data specifically but it becomes harder when you add in other domains such as Distribution and Finance.
Becca: How do you think fund managers are using data driven technology to improve performance?
For most firms it’s about whether they can get data in a usable format to help the business become a truly insight-driven organisation. Last year we conducted a research project with 33 clients and it was very clear that data is top of their agenda. Ultimately firms are looking at data to improve their operating models. Almost all the firms we spoke with are investing in foundational aspects such as cloud strategy and their enterprise data model strategy. On the innovation side, they are interested in automation, alternative data and advanced techniques like machine learning. But it’s hard. There are a lot of data projects that have failed.
Dermot: Are you seeing a different response to how people talk about cloud since we are all working remotely?
Yes. It came through clearly in our survey (conducted pre-Covid) that people are actively looking at cloud. Almost everyone has some cloud software in their business, (Salesforce for example) but only a third have a public cloud strategy. Azure came out as the most popular, that’s likely because it’s in the Microsoft stack that managers often have. Appetite for the public cloud is definitely growing - security is strong and it’s scalable to spin up and down. You can see that as a lot of the on-prem vendor solutions now also have cloud strategies.
Dermot: What was the most interesting finding in your survey of 33 buyside firms?
Within the asset managers themselves, there is a huge focus on data analytics as they seek to become more data driven organisations. Almost 80% of the largest managers are using advanced analytics in their investment processes and half of the largest firms have started to use it in distribution to retain clients or find AUM. That’s really interesting.
Becca: Are you seeing asset managers grow their data science teams?
Our survey revealed that most asset managers are not planning to hire a CDO if they don’t have one, but are looking to increase hiring in the team, including roles in data governance, data science and data architecture. It’s become clear that the knowledge around data domains is hard to transfer from other industries. For example, data specialists from other industries don’t often understand the data domains in the investment industry very well. You either have deep technical expertise on the data side but no knowledge of data domains or vice versa. It will take a while for the investment industry to advance to a place where it is strong on both sides but that’s clearly the goal.
Dermot: What areas are operations teams looking at right now?
In terms of strategy, that isn’t necessarily just with the COO. We see overall strategy start through a product lens. We’ve seen huge growth in interest in ESG products and how ESG can be embedded in everything. Firms are also trying to find new sources of alpha and weightings to private assets is growing. So, they are increasing in complexity in terms of the assets they’re managing, then trying to make their operational models more efficient in the whole. Really, what they’re trying to do is come up with a holistic view that doesn’t have bespoke or manual processes for different parts of the business.
We’re hearing a lot about automation and that is often top of the agenda for ops teams. Any process which requires some kind of print off and sign – those are being wound down in an accelerated way. That will be great as operations teams have typically been unloved in terms of investment but actually - as a response to Covid - they’re now ploughing ahead with automation.
Dermot: What’s really happening with ESG? Is it more than a box ticking exercise and how do you see it developing?
We’re seeing people apply a fundamental change to their investment processes rather than ESG being simply a score in their marketing literature For example, funds are looking at how they can change behaviour in their portfolio companies and the long-term term risk in their portfolios. There are regulations and standards being enforced in different jurisdictions so we’re still at the beginning of the journey. Pension funds in particular are not only asking for a couple of ESG products, they want to know the ESG impact across their entire investment portfolio.
Becca: Which companies do you think are really innovating in the investment world right now?
I’m always attracted to fintechs that operate a cloud / API-first strategy. I’m also really into ecosystem plays. OpenFin are doing a fantastic job at getting industry names onto their platform – they announced a relationship with Factset recently. We’ve also seen a lot of partnerships between vendors and asset servicers which is great for fostering collaboration and building a position that everyone doesn’t need to do the same thing every time.
Access Fintech has a collaboration with major Custodians for shared communication on settlement statuses . Citi recently spun out its proxy voting platform to a consortium of banks and that’s now become an industry wide utility for proxy voting. I love those areas of collaboration. When one pushes forward everyone benefits. Nobody should be competing on proxy voting infrastructure! We’re also seeing Calastone, FNZ and FundAdminChain all push interesting blockchain projects for Transfer Agents in the UK.
Becca: Do you think Open banking has been successful and what can the investment industry learn?
As an observer, it was a very positive move from the EU to push it forwards. It has probably had a different effect to what was expected in that it’s resulted in a new layer of integration companies like Tink, Plaid and Bud. The information APIs would have to support in the investment industry is extremely complex – not only cash transactions, but corporate actions, currencies, private markets and more so I think aggregator strategies will be really important. The IA and TISA are of course working on Open Investments which is a wonderful north star for the industry but implementation will be difficult.
Becca: Are there any lessons the investment industry can learn from direct to consumer technologies?
The institutional and wholesale markets have very different problems to firms that provide services directly to consumers. That said, the institutional investment industry can certainly take lessons in how retail banks deliver data and the digital service they provide. We’ve seen several interesting projects such as Willis Towers Watson’s Asset Management Exchange - its institutional funds platform. Initiatives like this have the potential to be quite disruptive.
Dermot: What do you think innovative buyside firms have in common?
Simply, they have embedded data at the heart of their business, and worked out what data they need, what they have already and are building towards a supply and demand view of data within their organisation. The successful firms are looking to access data across different domains, for example comingling data from their investment teams and distribution teams. But that is typically quite hard as it’s done in siloed technology. I don’t think it will be obvious for a few years which firms have been successful at doing this but eventually the differential between those two models will become very clear. Those who have done it well will see insights from across the business on how to get new clients, how to hold onto new ones and how to generate alpha. That will be important for competitiveness. I also expect more M&A as lots of asset managers with inefficient operating models have been able to hide, buoyed by very successful markets.
If you didn’t get a chance to read it, check out our previous interview with David Pierson, Director at OMBA Advisory and Investments.