Digital Transformation in Asset Management – Solutions for Fund Administrators

It is imperative for investment providers to invest in technology, now more than ever. As discussed in our recent article, “Digital Transformation in Asset Management - Obstacles for Fund Administrators,” pressure is mounting on the asset management industry to modernize their outdated legacy architecture and provide cutting-edge services to their clientele.
5 min read
12/09/21
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By Maureen Fitzpatrick
Vice President of Business Development
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Digital Transformation in Asset Management – Solutions for Fund Administrators

A recent survey by Temenos showed that over 90% of asset managers and fund administrators believe that investment in operational systems is now essential. There are many different roads towards digitalization, though; here we are going to look into a few of them.

The Key to Transformation

New technology and digital transformation are now the number one focus in asset management, and over a third of providers agree that the next 12 months will be crucial in their technological development. At the center of the trend towards new technologies is a desire to move away from proprietary ‘enterprise IT’ systems which require long development and upgrade cycles, to modern architecture that enables more agile methodologies, and where changes can be continuously developed, integrated and mobilized. The upgrade in systems means that fund administrators will be better equipped to meet both evolving service needs and increasingly complex compliance challenges.

Challenges Facing Digital Transformation

The world of fund administration is currently full of outdated legacy systems, but while most fund administrators agree with the concept of modernization, they often struggle with its implementation. This is because of several specific challenges, which any new technological solution will need to overcome, including:

  • siloed client and investor data
  • multi-jurisdictional regulatory obligations
  • cost pressures.

We delved into these challenges in depth in Part 1 of this article, so let’s now focus on how fund administrators are overcoming these, and other, challenges using new technologies.

Technological Solutions for Fund Administrators

1. Cloud Native Technology

While some companies have moved towards cloud-based software-as-a-service (SaaS) or platform-as-a-service (PaaS) solutions, for others, regulatory obligations are driving their technology strategy back towards on-premise solutions. This means adding multiple managed solutions to address specific issues within a legacy platform and to prolong its shelf life. If this sounds counterproductive to you, you are right – this route only adds more complexity to already bulky ecosystems and simply delays the problem for a while, rather than solving it completely.

There are in fact many benefits to consolidating your business around just one technological solution, and cloud native technology is quickly becoming the structure of choice for many in the industry. Cloud native technology can enable fund administrators to rapidly and elastically scale their businesses, while at the same time delivering lower cost of ownership, quicker response times and better access to data. The benefits of becoming cloud native are significant, and this single move alone can generate up to ten times infrastructure savings – making it a smart choice for those concerned about the cost pressures of transformation.

2. Microservices Architecture

In the asset management industry, and fund administration in particular, modular architecture is the newest craze. One-time, large-scale legacy system migration is neither practical nor efficient in the world of 24/7 demand, where interruptions to service can be extremely costly. So, the delivery of complex IT migrations is being transformed by microservices architecture, which builds and delivers IT projects as a series of small, self-contained components. Each component has a single, specific purpose, and works with the other components, like building blocks, to create the bigger project.

This significant change represents a move away from rigid, monolithic IT upgrades, to one where an individual component can be replaced or upgraded ‘block by block,’ delivering tangible ROI at every step without any obvious disruption to the user. This effectively solves the ‘disruption to operations’ argument that so many fund administrators cite as a reason against modernization.

Video Read the Article Digital Transformation in Asset Management – Obstacles for Fund Administrators

3. The Adoption of APIs

Another key technology that will drive the new phase of digital transformation is the adoption of application programming interfaces (APIs), which provide a ‘gateway’ so that a service provider can provide access to data or services to an external user or third-party provider. Essentially, APIs act as a way for two separate applications to send data back and forth, safely and efficiently.

The adoption of open APIs allows the asset management industry to connect with a wider ecosystem of financial and non-financial technology providers, and share data with them securely. This can significantly ameliorate pre-existing data management issues. APIs also allow providers to bring new products, features and digital services to the market faster. Fund accounting, investor services, anti-money laundering, reconciliation, and trade capture are just a few examples of where companies will reap the most benefit by adopting APIs.

4. Explainable AI

Artificial intelligence solutions are becoming ubiquitous with fund administration, and if anything, their dominance will only grow. Next on the horizon is applying AI to revenue-generating centers, such as personalized financial services.

A bigger impact will come from ‘explainable’ AI. This will provide greater transparency to AI-automated decisions and recommendations which are already in place to automate manual processes and create seamless customer journeys. And, because of its transparent nature, explainable AI will reduce regulatory risk, by providing a clear audit trail for regulators. As regulations on the use of AI are becoming stricter, fund administrators that employ explainable AI in their operations will be on the forefront of compliance. Because of this, explainable AI will be critical for fund administrators and asset managers to implement artificial intelligence in a responsible way. 

Conclusion

It is inevitable that fund administrators will continue moving away from proprietary ‘enterprise IT’ systems, but how they do so is not written in stone. In order to confront such widespread industry problems as siloed data, regulatory obligations and cost pressures, fund administration companies have to apply the most relevant IT architecture, thoughtfully and carefully. Only through careful consideration of all the technical solutions available will digital transformation be truly cost-effective, risk-averse and future-proof.

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