Today’s digital economy is transforming the asset management business, providing new capabilities and solutions to enable clients to grow their wealth and meet their evolving needs. Across Asia, wealth is growing and a new generation of investors is rising. While opening abundant opportunities, this broadening investor base in a technology-driven environment requires organizations to change the way they do things.
New technologies are emerging to support financial services. Artificial intelligence for generating regulatory reports, analytics for risk management, and machine learning for predicting settlement failures are just a few. Adopting them demands overhauling operational structures to thrive in the new landscape.
“Clearly, there is a shift in paradigms; we need to build a new operating model for the future, one that is underpinned by a digital ecosystem, driving positive outcomes for clients and investors, while considering business implications,” says Fiona Horsewill, Global Head of Securities Services, HSBC.
The transformation required to do this will meet a number of issues that need to be addressed.
Third-party solutions
While there is an urgent need to upgrade legacy structures, asset managers, or most of them, are spending much of their technology investment on enhancing their management, risk, compliance and reporting systems. In terms of economic value, the costs required to develop such systems are very high while the timeframe for generating returns is short. Not to mention that these systems keep on changing in an evolving regulatory environment.
On the other hand, investment in improving client experience and adding value to the market – considerations that are crucial to differentiate themselves from the competition – is comparatively minuscule. The focus has been on upgrading systems, such as turning manual processes into digital, not on using digital technology to improve their service to clients.
In this regard, there has been a transition from platforms developed internally to more specialized solutions from asset service providers and fintechs. "We have seen a shift from in-house developed platforms toward solutions from providers who spend a lot of energy and investment into certain parts of the technology. This is where there is opportunity for us to improve the client experience without too much additional expense," explains Wendy Kam, Director, Team Leader Account Management, Asia Pacific Securities Services, HSBC.
“This brings to the fore the importance of building an open architecture, one that can integrate capabilities from different providers and provide services back to them. It must be able to work well for all the different players in the ecosystem to be able to provide relevant and flexible solutions to clients.”
Any proposed changes to existing systems must have the support of senior management. “It is very, very important that senior management is behind these changes that need to be rolled out throughout the organization until everybody understands why we are doing this change, what will be the outcome – and it’s not necessarily the case that jobs will go away,” she asserts.
Management must be intimately involved in effecting this transformation. The changes may be small in the initial phases, but they should start at the core of the business, whether it be financial analysis or portfolio management. Otherwise, inertia and hesitation will defeat the most well-conceived plans.
A new breed of investors
As asset managers invest heavily in digitalization to upgrade operational systems and enhance client experience, competition is getting tougher. Fee compression results when providers offer undifferentiated services and capabilities.
At the same time, opportunities abound. Across Asia, private wealth is rising, and the younger generation who are taking over this wealth have their own ideas about preserving and growing it. This trend is driving new asset classes and opening more opportunities for the business.
“Investors are getting more granular while looking at macro trends at the same time, trying to uncover multiple sources of alpha. Some are using multi-asset solutions. High-net-worth clients are starting to get into the alternative space whether it’s hybrid credit or assets with illiquid premium,” shares Dagmar Baeuerle, Global Head of Client Executives, Asset Owners & Managers, Securities Services, HSBC.
There is also growing demand for private assets, such as infrastructure and real estate, from global asset owners who recognize that they can lock in longer-term yields by giving up short-term liquidity. For family offices, there is a trend towards investing in private credit, which enables investors to take on different risk levels and partake of consistent returns.
“While asset managers are building their own model for the future, we see our role, as a securities services house, as enabling and accelerating their transition.” says Suvir Loomba, Regional Head of Securities Services, Asia, HSBC. “It’s a collective journey and we are bringing together participants in the financial ecosystem, along with technology and services providers, to stitch the future fabric of this industry.”
