A relative lack of investment in the systems that support many middle office functions has left many institutional investors struggling to keep pace with data management and business requirements. Find out how managed services can support the middle office transformation.
Tech-driven innovations promise massive gains for the middle office in terms of both efficiency and business intelligence. But many asset managers are still grappling with a technology deficit that needs to be addressed before those opportunities can be seized in earnest.
This deficit is the result of several factors. At most institutions, most of the investment in new technology has been focused on the front office. In many ways that is understandable, as managers prioritize the analytical tools that enhance investment decision-making, and respond to emerging regulatory compliance and risk management challenges.
But there has been less attention paid to the underlying systems and architectures that support many of these processes, such as accounting, client reporting and data aggregation. The resulting limitations make it challenging for managers to make the most of a brave new world of digital possibilities.
Where the deficit exists, what can investors do about it? One option is to try and make up for lost time by investing aggressively in leading-edge solutions that reduce the need for manual intervention and support straight-through processing and integration, moving the enterprise towards a single platform. But these systems are in some cases costly and complex. Often new requirements have arisen by the time they are finally implemented.
In addition, some platforms may have limited capabilities when it comes to complex new products such as derivatives or data management (which, as we noted in the earlier article in this series, is an increasingly important strategic function for the middle office).
Managers may adopt cloud technology to meet the need to constantly scale, and potentially reduce the costs and complexity of software licenses and upgrades associated with in-house infrastructure – but even cloud solutions need to be managed.
The complexity of a ‘DIY’ approach creates a clear argument for adopting services managed by an external provider. At the same time, it is not realistic – or desirable – for investors to cede complete control over the data that in many respects fuels their business.
What’s needed is a partnership, in which the managed services provider furnishes the platform infrastructure and bedrock of integration needed to rapidly close the technology deficit, bridge the gaps between the front and middle office, and scale regardless of how regulatory or customer demands evolve. A best-in-class platform should come embedded with specific industry expertise and servicing capabilities, enabling the clients to rapidly launch sophisticated new products, and easily connect to service and data providers across different markets.
At the same time, the investor retains ultimate oversight of their own data and processes – and gains new insights in the bargain. Uniting data in a single platform that provides a dashboard view of transactions and market activity in real-time not only enhances understanding of progress and possible trouble spots, but also provides visibility into the performance of individual counterparties or service providers. Instantaneous, easily digestible information enhances the accuracy and efficiency of activities like cash management, and contributes to more confident decisions.
By incorporating digital innovations, a platform can constantly improve oversight and client control over data assets. Application programming interfaces (APIs), for example, present various data streams and tools in a ‘store’-like format, allowing clients to pick, choose and assemble the precise data resources they need, customizing the platform to their business requirements.
As we have noted, managers are still to some extent locked in a game of catch-up when it comes to technology. Many also lack the time or resources to assess and invest in innovations that may only pay out a decade or more down the road. Yet there is no doubt some of these innovations are likely to have a profound business impact.
A managed services provider who plays an active role in the dialogue around this and other industry shifts, and who is willing to identify and invest in game-changing technologies and incorporate the results into their offerings, can provide clients access to innovation as well as current best-in-class technologies. That creates platforms that go beyond addressing current needs to anticipating and proactively building in future change – and shifts the technology deficit to a strategic surplus.
The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute investment advice, or any other business, tax or legal advice, and should not be relied upon as such.
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