the changing world of asset management technology...

A recent news article from thetradenews caught my eye, and had me thinking about what is happening with the independent technology vendors in the Asset Management.

Technology landscape of the Asset Management Industry is undergoing significant changes since the last few years. As per BCG, global AuM is close to $100 trillion, and the technology infrastructure underlying this industry plays an important role in ensuring that this money is managed well, without causing adverse impact to the real economy, and for the best interest of the asset owners.

Asset Management technology supports the key business capabilities that are spread across include front (CRM, Portfolio Management, Risk Analytics, Portfolio Construction, Order and Execution Management System), middle (Transaction Cost Analysis, Pre and Post Trade Compliance, Trade Management), and back (Fund Accounting, Fund Administration, Performance Measurement & Attribution, Reporting etc.) office.

Asset Management companies have three options, when it comes to building these capabilities:

• Build firm’s own technology
• Utilize the capabilities of a relevant technology vendor solution
• Outsource the functions to a service provider

Historically the AM firms have outsourced their back-office function to securities servicing firms of the like of State Street, BNY Mellon, Northern Trust, etc., while managing the front and middle office by themselves. However, with the increased outsourcing of middle office functions by AM firms during the last decade and the recent trend towards front-to-back integration, things have begun to change in the technology solutions landscape.

This domain had many independent technology vendor solutions including, but not limited to, SimCorp Dimension, Finastra Fusion Invest, Charles River Development, Bloomberg AIM, SGSS CrossWise, IHS Markit Thinkfolio, Eze software, etc. And then we have Aladdin, the platform Blackrock built to manage its business and started offering to other asset managers since 1999, and now grown as market leader in this space.

Securities Services Providers

o?? In 2018, State Street acquired Charles River Development for $2.6 billion and combined it with the traditional capabilities to offer Alpha, as a totally integrated and proprietary front-to-back service

o?? Other major providers, including BNY Mellon, Citibank, BNP Paribas Securities Services, Northern Trust, HSBC, etc. have formed alliances with technology platforms offer front to back services

§? BNY Mellon launched OMNI (Open Modular Network Integration) which is a best-of-breed solution, (sitting on the other side of the spectrum from Alpha), in alliance with Amundi Technology

§? Of the above alliances, a large section have chosen to integrate their middle and back office with Blackrock’s Aladdin; like JP Morgan Chase providing a seamless experience for their common clients

Emergence of new players

o?? Rivaling Blackrock, on this side of the pool, we have a new entrant in Amundi Alto, that claims to be cloud-native and focused on EU based asset management

o?? Deutsche B?rse is preparing to acquire SimCorp for $4.3 billion, and plan to combine its existing data and analytics subsidiaries Qontigo and ISS, with Dimension to offer investment management solutions

o?? PIMCO, Man Group, IHS Markit, State Street, Microsoft and McKinsey & Company are working together since 2021 to build HUB, a cloud-based operating platform aimed at transforming asset managers’ operations technology

o?? Cloud-native fintech players offering front-to-back solutions like (a) Enfusion that offers support from OEMS to PMS to Accounting and Analytics in one central location, on one unified dataset (b) Ridgeline that is a built on public cloud, purpose-built for the investment management industry (founded by Dave Duffield of PeopleSoft and Workday fame)

Expanding existing capabilities

o?? Never to be left behind, Aladdin has been adding to its platform capabilities through (a) acquisition of eFront to bolster Alternative Investments (b) partnership with Avaloq to provide investment solutions to private banks and wealth managers

From the looks of it, as the industry is facing significant headwinds, the independent technology solutions aimed at large AM firms might continue to be acquired, tied into a partnership with large asset managers or securities service firms, in the search of an efficient front to back platform. Regardless of the size of the AM firm, the ideal platform for the future looks to be cloud-native, data-centric and supporting the asset management value chain from front to back.

No matter what an AM firms solution is today, it is poised for a major change as the future landscape becomes clear after the dust settles and the solution takes shape across securities services providers, vendor solutions, AM firms offering their solutions and fintech firms.? ??

Thanks, Rumman