As asset service providers continue their success in middle office outsourcing, how can they achieve the scale they need, while providing the flexibility asset managers demand?
The scalability challenges
Between 2003 and 2013 Asset Service Providers ('ASPs') experienced healthy levels of growth, with a compound annual growth rate of assets under administration of 10%. This has likely continued over the last four years and with the middle office outsourcing market also growing at 7.5% through to 2019, ASPs are facing challenges when it comes to scaling their services and technology to meet increasing client demand.
When it comes to performance and risk analytics, which is a key value-add service in the middle office outsourcing market, ASPs don’t necessarily have the historical legacy technology problems that asset managers face. So where does the problem come from? In many instances, legacy technology is inherited as ASPs win outsourcing deals that involve the lift out of entire teams and the technology that comes with them. Over time, this can result in a very difficult and costly technology landscape to manage, both in terms of the number of systems to manage and the scalability levels that are possible with legacy software.
Producing high quality and accurate data and analytics in an ever shorter time frame is at the heart of the scalability challenge for ASPs. Legacy performance and risk systems running on outdated software architecture simply can’t scale to meet today's demands. Overnight calculation windows are becoming a thing of the past and having to wait several hours for a performance system to produce results frustrates clients and damages reputations. Modern computing scalability is all about elasticity. Being able to scale-up capacity as and when it’s needed and then reducing it after the workload has completed is the most efficient use of computing power. Having a system where this elasticity is configured and automated is even better.
Power is nothing without control
Simply calculating everything faster is nice, but on its own, speed does not solve all the issues. Power is nothing without control and oversight. ASPs need to run efficient middle office operations and by simply repeating the same errors and problems faster doesn’t solve anything. This is where workflow and intelligent automation play a large part in being able to scale middle office operations, without adding large amounts of headcount. Being able to see the end-to-end process for all clients in a single system empowers analysts to manage multiple clients at the same time. Being able to manage data issues by exception and isolate problems quickly without impacting other portfolio groups or clients, means the performance process can continue unaffected. Reducing disruption to the process reduces the need to recalculate large amounts of data. This results in a better service and reduces the turnaround time to deliver performance results to clients and stakeholders. When recalculations are needed, having elastic scalability means that you’re not waiting long, even when recalculating everything.
The need for flexibility
Off-the-shelf analysis and reporting is fine up to a point, but asset managers are used to more. They are used to 360-degree analysis of all portfolios with multiple analytical models to play with. This is a result of years of in-house customization of systems. This level of customization is expensive and unsustainable long term, hence many managers outsource to ASPs, but moving from ‘have anything you like’ to ‘it’s only available in black’ is too disruptive for most managers to accept. Restricted levels of portfolio analytics lead to ad hoc reporting requests, which are expensive to produce and cause delays, leading to frustration. ASPs need economies of scale, but must offer flexible analysis features to meet client demand. To solve this dilemma, systems must support a wide array of functionality, analytical models, and must have flexible distribution options.
Clients need multiple ways of interacting with the data. This can be through the application interface, with configurable screens designed specifically for each user type, or through alternative methods of data extraction, such as Web APIs that allow asset managers to programmatically extract data into their own downstream data lakes or reporting solutions.
Technology is the strategy
Achieving scale with flexibility is only possible with the right technology strategy and partners. Positive results can be achieved when systems can manage high levels of data quality, elastic scalability, and flexible output and distribution. These are the foundations of self-service analytics, where clients and stakeholders can connect to interfaces to get the analyses and data they need in the format they want. Behind the scenes, ASPs can efficiently ensure data quality and accuracy with data controls, automation and workflow, and provide flexibility with mature analytics, configurable user interfaces and Web APIs.
Asset managers are increasingly looking to ASPs to provide value-add middle office services such as performance measurement, risk management and compliance reporting. Competition is high and ASPs with the right technology will be able to provide the scale and efficiency they need to be competitive, and the flexibility their clients demand.
- The middle office outsourcing market continues to grow
- Data quality at scale requires controls, automation, workflow and elastic computing power
- Asset managers expect flexible analysis options and interfaces for different stakeholders
- ASPs with the right technology strategy will ultimately dominate the market