Risk is an inherent part of life in the asset management world. Fortunately, we are entering the dawn of a new era in how we mitigate risks associated with running the investment management business. Never before have service providers been able to do so much. Not too long ago, the idea of deploying a hosted software solution required a big leap in trust. The associated growing pains from those intrepid early steps toward different ways of looking at outsourcing are paying off. Now solutions providers are offering integrated front, middle, back office, and interactive data technologies wrapped with a full suite of operational support services. Asset managers can adopt entire platforms or plug and play as they see fit with greater certainty than any period prior. Welcome to the roaring 2020’s.
Just as the world witnessed rapid market growth, accelerated consumer demand, and significant new trends in the roaring 1920s, our industry is today—and the role of outsourcing is playing a major part.
Technology and Integration Risk
Technology is constantly changing. There is no denying how critical integrated technologies are to running the business. Keeping pace and integrating new tools and approaches requires expertise, time, and money. Some firms do this better than others, but should tech integration really be considered a market differentiator for an individual asset manager? In some areas, the answer is unequivocally yes – whether it’s using tech and data to rapidly identify profitable investment opportunities, to find and retain clients, or to achieve efficiencies. But there is so much more to running the business that has become commoditized over the years. Operating models are ripe for assessing how outsourcing can help firms truly focus their technology assets on ways that add the most bang for the buck while reducing risks.
Human Capital Risk
Expertise can be hard to find. Sometimes you need it urgently. As people move along in their career, they take valuable knowledge with them. As noted above, technologies are evolving, and it takes the right people to keep pace. All of this leaves individual asset managers exposed, with small and mid-sized firms especially vulnerable. Enhanced service offerings are available in the market to help stabilize operations before turnover strikes and business levels change. Outsourcing firms can also provide access to experts needed to run the business with precision and skill across a wide array of investment products. The key is finding the right partner who can plug in and help augment existing staff models where they’re needed most.
Variability Risk
As markets move up and down and volumes of activity fluctuate with it, the ability of individual asset managers to rapidly flex can be challenging. Capacity needs change from cycle to cycle. Market events demand access to expertise that is oftentimes fluid. Costs associated with managing such variables can weigh heavily on the balance sheet. The bandwidth needed for executing work, to expertly respond to a variety of different scenarios, to power processes, and to store data is a primary risk that every asset management firm must govern. The service provider community is wise to these needs and has continued to evolve operational and technology offerings to keep pace with the changing nature of our industry.
At the end of the day, the asset management mission remains largely the same, but how we carry out that quest is evolving. Activities to attract and retain clients, seek the best returns for a given risk profile, and adhere to fiduciary duties are at the very core of what an asset manager does. The capabilities of the service provider community surrounding all of this have grown significantly in recent years. Some providers are more aspirational in their offerings than others and others more pragmatic. The opportunities to engage core business functions with trusted partners are available to mitigate a variety of risks. The big service providers have deep teams of experts who wake up every day living and breathing all essential aspects of the investment process. Now is the time for asset managers to sharpen their business model, refocus on their core value proposition to best stand out from the pack in this highly competitive market, and reap the rewards.
