Why the Time Is Right for Asset Managers to Consider Cloud- Based Solutions
Over the past decade, the asset management business has been impacted by several factors, including the popularity of exchange-traded funds (ETFs) as investment vehicles; new regulations; the rise of automated investment services, such as robo-advisors; increased scrutiny around risk management; and a focus on the end-user experience due to the growing popularity of tablets and smart phones. These factors have led to the “new world” of asset management with a different set of opportunities and challenges.
The traditional approach would have been custom development or package implementation, both of which came with the additional overhead of application hosting and maintenance. The introduction of cloud computing has added a new dimension to these solutions, enabling firms to completely break free from application hosting responsibilities and reduce maintenance overhead. Cloud-based solutions, however, are perceived as posing challenges in terms of information security or leakage (specifically when the solution is built and managed by a competing firm), integration to a firm’s existing technology infrastructure, and change requirements for existing processes.
Some of the factors listed below complement each other and hence cater to different business functions.
There are always exceptions to the rule. For example, several SaaS-based products can provide information security and can be easily integrated. Similarly, some custom-built products were developed in a way that can lower the cost of ownership when compared to a SaaS offering.
In today’s ‘new world’ of asset management, cloud-based solutions are available to help firms gain a competitive advantage
To stay competitive and ahead of the curve, asset managers must evolve as a response to industry change, maximize opportunities and successfully tackle new challenges. The difficulty, however, lies in determining what to change and how to make the change in terms of people, processes and technology. The figure below offers a point of view on answering the question, “Which solution model best caters to the needs of specific business functions in the asset management world?” Areas in blue highlight the most preferred solution, while the red areas highlight the least preferred one.
Cloud-Based Solutions Used by Asset Managers
Cloud-based solutions are not new to the asset management space but uptake will only occur when firms feel more comfortable with SaaS-based solutions and the right products are available. We can already see many product vendors now supporting a majority of their products as cloud-based solutions.
A number of players in this space offer product suites (in addition to stand-alone products) to reduce the integration challenges associated with cloud. For example, Charles River’s Investment Management solution is a suite of products for portfolio management, compliance, trading and order management, execution, trade settlement, risk and attribution, position and cash management, covering almost all functions across the front and middle offices.
Similarly, Bloomberg Asset and Investment Manager (AIM) is a SaaS-based solution that focuses on portfolio management, order management, compliance and trade matching/settlement and integrates well with other Bloomberg platforms like EMSxNet, Bloomberg FIT and BVAL. It also integrates with BVAULT, Bloomberg’s data archiving platform, and can be used to meet regulatory and legal reporting needs.
Newer asset managers who are still building their client bases can opt for a SaaS-based solution rather than making a significant investment in building and maintaining a technology infrastructure. Likewise, these solutions are appealing to niche asset managers who want to focus on specific client segments and may never want to grow too large.
On the other hand, solutions like Barclays POINT, BI-SAM Go and Wilshire AXIOM, focus on providing business value in specific areas such as case risk, analytics and attribution. Risk and performance attribution functions require software to process large quantities of transactional and reference data using complex mathematical models to generate the desired output. This activity utilizes considerable computing power in short periods of time. In this scenario, SaaS-based solutions are ideal since computing power can be made available on demand.
In the back-office space, products from SIMCORP, such as CORIC Web Report, and Kurtosys are providing SaaS-based solutions for client reporting. This is one area that is growing in popularity as more asset managers look to support changing client needs across multiple platforms, including tablets.
With so many players in this space offering a variety of cloud-based solutions across the front, middle and back office, why are we still talking about cloud adoption? A TABB survey published in Q1 2015 showed 23 percent of respondents were comfortable using a public cloud and more than two-thirds cited concerns such as compliance, security and data control. This suggests that concerns around information security and integration challenges are still preventing today’s firms from fully embracing cloud-based solutions.
To address these issues, providers are exploring a hybrid cloud approach that connects data centers, public and private clouds in any combination. In a hybrid model, firms have the ability to use a public cloud for non-sensitive data or testing and rely on a private cloud for critical data and applications. While retaining their independence, the individual clouds are bound together to facilitate the portability of data and applications. Products, such as VNS3:net by Cohesive Networks, allow firms to build their own custom cloud network, enabling them to extend onto a public cloud infrastructure while remaining inside their own network. Even with new options like these, the current adoption and usage of cloud-based solutions suggests that there is still some way to go before the industry is prepared to fully unlock the full potential of the cloud.
In today’s “new world” of asset management, cloud-based solutions are available to help firms gain a competitive advantage. Although the benefits of cloud computing have been well documented, firms still need to use a logical framework for evaluating and selecting the right technology solutions. They can choose to follow a bottom-up model that begins with the business need, or a top-down model that looks at what other firms in the industry or related industries are doing and then decide which technology solutions to adapt. Regardless of the model, it is important to view adoption criteria through the same lens to ensure any new solutions will help firms achieve their business goals.