Post COVID, businesses across industries are seeing new trends emerge that are influencing operations and challenging them to reassess how they do business. This is true for the asset management industry, too, where, even though growth has been sustained, ways of working have been disrupted.
We take a look at the top emerging trends in asset management, and how FinTechs are supporting firms in effectively managing these trends to ensure they keep ahead of growing demands. We also unpack the findings of the Convergence League Table for March 2022 and explore how the top 25 asset administrators, auditors, custodians and prime brokers have fared in terms of industry growth.
This blog’s insights are based on Episode 14 of our In Conversation with Convergence podcast, hosted by Convergence Co-Founder and President, George Evans. In this episode, George is joined by guest speaker Anup Kumar from Linedata, who discusses three trends currently being seen in the asset management industry, and how firms are dealing with these. Listen via the Convergence website or scroll down to continue reading the blog.
The industry post-COVID and the dominant trends in asset management that are emerging
COVID had a massive impact on the way businesses do business, particularly in terms of their infrastructure and whether it is sufficient for business continuity in the face of disruptions. Both in terms of infrastructure, but also in general, there has been a noticeable increase in outsourcing. This increased traction in outsourcing is also thanks to the need for specialized resources. Post COVID, the talent management spectrum is facing challenges attracting and maintaining talent, especially specific specializations that are becoming more difficult to find and retain. This is just one of the challenges businesses are attempting to address through outsourcing.
Overall, businesses are needing to reassess what they’ve built and what they want to continue to do themselves versus what they need to invest in to continue thriving. And with the emerging trends starting to be seen post-COVID, it’s an interesting time in the asset management industry with new, sophisticated solutions being sought out.
Increasing back-office complexities
Fortunately, the private credit space is seeing a lot of growth, and assets under management in the market are expected to rise to $1.5 trillion by 2025. However, with explosive growth and the inherently bespoke nature of the industry, where every deal is customized, the back-office function is seeing increased complexities.
Although businesses, like Bright Credit, pride themselves on providing customized credit arrangements, it’s become apparent that inefficiencies from a technology perspective are making scalability difficult, which is making meeting rising demand a challenge.
Use of technology like artificial intelligence and machine learning in the back-office and IT operations has been slow, which has made things more difficult for analysts. Instead of focusing on investment decisions and monitoring investment performance, analysts have had to spend more time on administrative activities, particularly collecting, ingesting, normalizing and validating data for use by limited partners.
Back-office functions like valuation processing or loans administration, as a result, have become more complex, and businesses require specialized resourcing and skills to manage, again, contributing to the increase in outsourcing solutions.
Increasing cybersecurity concerns
Since the start of COVID, cyberattacks have increased 700%, and 80% of those attacks originate at the end points. Within financial services, the buy side industry is notably more susceptible to cyberattacks and a soft target for cyber criminals. As such, there is increasing interest from regulators like the SEC in how asset management and buy side firms are dealing with the threat of cyber attacks and the security processes and controls they have in place.
This, too, is an area firms are outsourcing support for, with FinTech firms now offering full-service threat management solutions. This threat intelligence is being leveraged to protect infrastructures and endpoints, to help asset management firms stay ahead of cyber threats. Additionally, many firms are also looking to leverage these solutions for cyber policies, to ensure controls are sufficient for regulatory requirements.
Talent acquisition and management challenges
As mentioned, it’s become increasingly difficult to find good resources in the asset management space. With the so-called ‘resignation tsunami’ the industry is facing, finding and retaining specialized talent is becoming harder, and firms are needing to carefully navigate the future of work and how to handle concerns around remote or hybrid work constructs, while best meeting employee expectations.
From a policy point of view, the industry in general is responding positively and being more flexible and adaptive in policies. Despite this, the growth the industry is experiencing, paired with the high number of resignations being seen, talent management still continues to be a challenge, and losing key resources poses great operational and reputational risk.
Many firms have needed to slow down operations in order to work out what mechanisms to put in place to manage changing capacity. And because technologies like AI continue to see slow adoption, and functions like loan administration continue to be time-intensive, firms are needing to think of different operating models and approaches to ensure they keep scaling as needed to meet industry growth demands.
Operating as an extension of clients’ operations
To meet the needs that come with these emerging trends in asset management, FinTechs are offering solutions that mimic client controls and processes and augment transformative technologies into those they already have in place. What this does is give clients a sense of operational control they would otherwise only achieve internally, because their solutions providers are now operating as an extension of their business, not as a “ticket it or leave it” type of service provider typically seen with third-party providers.
Having a service provider operate under the same common operating leadership and setup, processes and control mechanisms allows businesses to hand off intensive work, like running capitalization tables, for more efficient management. Depending on a business’ unique needs, different degrees of support can be provided, but more effective, current day solutions are being implemented to make the separation between client and service provider less apparent from an operational perspective.
Convergence League Table Summary
With every episode of In Conversation with Convergence, we report on the findings of the Convergence League Table for that month, tracking and comparing the growth of various asset management industry players. To unpack the highlights of this month’s Convergence League Table podcast, as at the time of the April podcast release, the Convergence League Table revealed that:
- Overall, administrators growth from March of 2021 to March of 2022 was about 15.3%
- In terms of administrators, admins ranked 1 to 5 grew at about 19.5%, admins in positions 6 to 10 registered the highest assets under administration growth at 26.5%, and admins in positions 11 to 25 grew at about 25%. Interestingly, all other admins positioned 26 and higher, only grew around 4.5%
- Looking at auditors, auditors in positions 1 to 4 grew at about 8.5%, and positions 5 to 10 grew over 19%. Auditors in positions 11 to 25 grew almost 29%, which is almost three times the market growth!
- Custodians greater than the top 25 registered the highest assets under custody growth, showing an industry growth of around 16% year over year. The top 10 custodians grew at about 14.25%, while the custodians ranked 11 to 25 grew at about 13.25%. From position 26 on, of which there are 1 400 custodians listed, custodians grew at about 31%
- In terms of prime brokers, those greater than position 25 registered the highest growth in the number of funds, showing, on a fund basis, market growth of about 14.65%. Prime brokers in positions one through 10 grew at about 4%, while those in positions 11 to 25 grew at about 6.5%. All the primes grew a little above the market at about 15.5%, effectively outpacing the market.