The global asset management industry currently manages approximately $100 trillion for its clients. It’s a highly competitive industry with a lot at stake.
Given the sheer size of the industry, it’s no surprise that technological advantage has become an important differentiator. The technology touches a large part of the industry, from stock and market analysis and modeling to trading and back-office administration.
Technology also provides scale and enables asset managers to reach their clients. This is very much the case in Australia, where the superannuation – or pension – industry is in the throes of significant consolidation with ongoing mergers between funds. At the same time, they differentiate themselves on the experience they give to members.
The largest fund, for example, is AustralianSuper, which has 2.3 million members and over A$233 billion under management. One of the reasons cited for the fund’s wave of mergers in recent years is that expanding the fund will provide economies of scale, allowing technology investments to engage more meaningfully with members.
This seems counter-intuitive, but the reasoning is that the larger the fund, the better able it will be to provide more appropriate and tailored advice to members, as the fund will have the data systems in place to achieve this. As many of these mergers have yet to be established, the jury is still out on whether this line of thinking is correct.
The long and winding road to automation
Automation is a particularly relevant technology in asset management and administration. But according to global fund network Calastone, the implementation of automation in fund management is lagging behind.
Calastone has just sent out a global survey to understand the main drivers of automation and how they differ between regions. It examines several key factors, from regulation to customer service and cost, to understand the priorities between operational departments.
“The case for greater process automation in asset management has long been won, but the industry continues to travel a long and winding road to the desired high levels of automation and straight-through processing” , says Calastone.
“However, in recent years the pace has picked up, thanks in large part to fintech.”
Calastone undertakes these surveys on a regular basis, and the latest in 2020 and 2021 hinted at what the current exercise could reveal: that despite its size, the global asset management ecosystem is still highly fragmented and often relies on outdated technology. , and manual processing remains frequent.
“It is crucial that those who have lagged behind embrace digitalization so that they can be competitive in the future”
Automation lags behind in the top five markets studied, with Australia being the most advanced with just under 50% automation in the critical area of distribution support. The laggards are South Africa and, surprisingly, Singapore, both at around 20%.
This is due to the very diversity of global distribution models.
“While UK fund distribution networks are dominated by independent financial advisers and platforms, banks are responsible for the majority of fund sales in Singapore,” commented Edward Glyn, Head of Global Markets for Calastone. .
Market maturity is also a key factor.
“The UK and US markets are much larger and more advanced fund markets than those in South Africa or parts of Asia,” says Glyn.
“The cost of labor is also much higher, which translates into a more robust approach to automation and cost reduction. In the Australian market, commercial banks outsource much of their manual processes to third parties, which could help explain their perceived higher levels of automation. »
Compete in the future
Some activities are less automated than others. A large proportion of service providers in the UK, UK, South Africa, Australia and Singapore acknowledged that certain activities such as compliance support, distribution support, knowledge of your client, anti-money laundering, client onboarding and reporting were either mostly manual or only partially automatic.
Even though most asset managers used to hold digital or tokenized assets such as cryptocurrency, these are often still managed by legacy systems despite asset managers understanding that digital infrastructure and automation would yield better results.
“If global fund administrators are to stay relevant, most will need to make rapid changes to their business models,” says Glyn.
“It is crucial that those who have fallen behind embrace digitalization so that they can be competitive in the future.
“Whether through an improvement in the way investing works today or through whole new ways to invest such as tokenized assets.”
The drive for transformation is growing. In other research, Calastone has identified that expenses are growing faster than fund manager revenues and that business models are becoming less profitable, even as the industry handles larger volumes of money.
The second of the three recommendations in this research invokes the opportunities presented by technologies such as automation and better data management: asset managers should also join the “race to digital transformation” and rebuild operations to “transform the data of a puzzle into an advantage”. .
Lachlan Colquhoun is the Australian and New Zealand correspondent for CDOTrends and editor of NextGenConnectivity. He remains fascinated by how companies are reinventing themselves through digital technology to solve existing problems and change their entire business models. You can reach him at [email protected].
Photo credit: iStockphoto/gorodenkoff