Data Strategy: Look Back Before Moving Forward

“It’s like De ja Vu all over again.” Yogi Berra’s famous colloquial expression comes to mind when thinking about the evolution of the next generation of data architecture and the approaches and early thoughts of some asset managers.

As noted in Citisoft’s Outlook 2023, asset managers must prioritize the evolution of their data architectures with the concurrent evolution and modernization of industry solutions. But how many asset managers will truly capitalize on the opportunity to build a next generation architecture or simply opt to build version 2.0 of what they have today?

The financial services industry has a long history of being slow to adopt new technologies and trends. Looking back—and realistically it’s not that long ago—financial services firms held the believe that they could not possibly:

• Outsource their back and middle office operations to an external service provider
• Allow wireless technology (i.e., laptops) in their offices to access core systems
• Store their clients’ financial information in the cloud

Obviously, all the above transformations have been adopted and are now the industry standard. And yet, here we are today where some asset managers are contemplating data and technology strategies that resemble similar approaches used in the ‘90s and early 2000s. The leading approach of the time involved resolving all data in a centralized data warehouse. This involved piping in, transforming, and reconstructing data from multiple external and internal sources into a single “gold copy”. Although this was effective decades ago, today’s cloud-native solutions are following a different path.

The reality is that many asset managers and service providers began their initial cloud journeys around the same time, have learned from those experiences, and are now at the point of being able to deliver significant value for their organizations. With more and more (front, middle, and back office) cloud-native products being introduced, asset managers need to prioritize their data architecture with the evolution of those solutions. The challenge they both face is time to delivery if they choose to go it alone and build it all themselves. In some cases, partnering with a solution provider that solves a significant business problem may be the best way to accelerate an asset manager’s data architecture and deliver solutions to the business sooner.

The way in which data is consumed, shared, and stored will continue to progress along with the evolution and maturation of the next generation data architecture. The next domino to fall will be: where will all the data be stored? Historically, asset managers have been reluctant (for good reason) to adopt a federated data model with service providers. Relinquishing control of your firm’s data assets to a vendor can be a frightening thought.

Since then, data integration approaches like REST APIs and Snowflake Share, have quickly become commonplace industry standards. With the continued evolution of cloud native solutions, cloud storage fees, and the never-ending quest for seamless integration, a federated data model that utilizes a common infrastructure for the investment industry, may be the next solution on the horizon. Can you envision a regulatory report that has sourced from trades from a vendor order management system, positions from a back office service provider, and client account data from an internal data application?

Senior operations leaders are continuously focused on solutions that provide business growth and operational scalability for the front, middle, and back offices. With more and more cloud-native products being introduced and the evolution of data architectures, the next few years are sure to be interesting! As Yogi Berra said, “The future ain’t what it used to be.”