Asset management systems have come a long way in a fairly short time. The technology has become more powerful and the functionality more sophisticated. IT systems are now a critical component of the asset management industry; the effectiveness and efficiency of firms can be severely reduced by the failure of individual systems.
But how did we get to where we are today?
How far have we come and what can we expect the asset management solutions of the future to look like? Let's take a look at what I think we can identify as the four ‘ages’.
The Asset Management Age
What we think of as asset management in financial services is really a sub-set of a much broader discipline. In the broadest sense, asset management is the management of entities that have a value, where an entity could be a solid physical thing like a car or a building, or something less tangible like a share of the equity in a company. Asset management systems help people to keep track of their assets as they are bought, maintained, and eventually disposed of.
The first system used in financial services were structurally similar to those used in all forms of asset management: they stored information about what assets were held, where they were held, when they were acquired, how much they cost, and how much they are worth now.
The Investment Management Age
As the processes of making and implementing investment decisions became more complex, we needed a more specialized type of solution. Portfolio managers needed systems that would help them to monitor investment portfolios more effectively. They needed systems that would view a portfolio not just as a collection of asset holdings but as a set of individual sources of value, each of which is subject to different and complex factors that determine its value.
Portfolio management systems were developed to provide portfolio managers with more accurate, up to date, and complete information about the sources of value in their portfolios. Investment operations systems (confirmations, settlements, treasury management, etc.) were developed to enable operations staff to implement investment decisions more effectively and consistently.
The Business Management Age
Asset management organizations are businesses that need to generate profits and that have exposures and liabilities that need to be managed. So as the industry evolved, leveraging a broader range of more complex sources of value such as derivatives, there was a growing need for more effective business management.
Compliance systems, performance measurement systems, and risk management systems were developed to provide middle office functions with the ability to independently monitor the operation of front office and back office teams, and the risks to which individual portfolios and the business as a whole were exposed.
The Client Management Age
Since the dot-com bubble, asset management organizations have focused more and more on the needs of investors, and this trend became much more pronounced following the Global Financial Crisis of 2008. Asset management organizations have had to adjust their perspective from a largely internal one to a largely external one, in which the objectives, needs and interests of their clients have become of primary importance.
And so we come to the present, where the need is for systems that provide better explanations of where value is being added or lost, and much more detail and transparency about the activities of asset management organizations at trade-, client-, fund-, and market-level. Much of the emphasis is now on the visualisation and accessibility of investment information for the investors themselves. In system terms this relates to client communications systems, client management systems and client portals.
The Changing Landscape
As we moved from one age to the next, the focus shifted to a new class of system, however the development of the systems introduced in the previous age didn’t stop. They became mainstream components of the system platforms in asset management organizations, but their product roadmaps had to be re-aligned with the shift in focus in order to adapt them to the new business needs.
But there hasn’t just been a shift in focus from one type of system to another. There have also been sustained and continuing changes in the overall system landscape:
- Systems have changed from asset-centric to asset-agnostic; no longer do we have separate specialized system for equities and bonds.
- System platform architectures have become holistic to ensure that all of the individual systems comprising the enterprise platform share a common and consistent set of data.
Where next for asset management systems?
Perhaps the next significant change will actually move us away from the simple notion of asset management. What I mean by this is that investment management strategies are now much more complex than the old buy-and-hold approach of the Asset Management Age. We now have absolute return strategies, liability-driven investment strategies, structured products, multi-asset investment strategies, and so on. Are we at the point where we don’t just need systems to manage assets within strategies, but also systems that manage the strategies themselves?
An ever-growing number of asset managers around the world rely on BI-SAM to improve their performance measurement capabilities, and thereby their investment strategies.