Picked-Up Pieces: Musings on the State of the Asset Management Industry

I am once again channeling my inner Dan Shaughnessy (see previous blog to understand the construct) as I attempt to capture my views and opinions on the state of the asset management industry and Citisoft's place in it. Here are my "picked-up pieces" and thoughts while catching my breath from yet another Patriots victory in the AFC Championship game and inevitable Super Bowl run. 

Market Volatility

The skittish market and talk about volatility is overblown. The market has been termed "volatile" dating back to the dot com bubble or perhaps longer. Meanwhile the S&P 500 index has been up double digits 7 of the past 10 years. I'm not an economist, but I think that's pretty good. Maybe I'm an eternal optimist, but continuing to hear from asset managers how the volatile market continues to impact their spending habits is starting to have the same impact on me as that teacher from Charlie Brown ("wah wa wa wah").

Transformation

The longer asset management firms delay taking on necessary and required efforts to transform their businesses, their internal risk factors and costs will continue to spiral upward. Analysis paralysis and conservative thinking will not do you many favors. Our industry continues to be plagued by legacy technology, redundant processes, and unwieldy operating models. How much further are you willing to kick the can down the road?

Confidence vs. Arrogance

Understanding the difference between confidence and arrogance is a key life skill. In this video from Northern Trust, the topic is addressed head-on. I can't agree more. While there can certainly be a fine line between confidence and arrogance, there are certain hallmarks specific to confidence that ring true—in no particular order: listening skills, self-awareness, authenticity, and empathy are all traits and characteristics that define our confident leaders, regardless of industry or career path.

Best-of-breed or Single Solution

I am quite enjoying the best-of-breed vs. single solution battle that continues to rage on with the vendors and service providers in the asset management space. You know who you are. I'm often asked what is the right way to think about it? Tossing aside the often self-serving marketing pieces that float into my inbox every week on this topic, there really is no simple answer here. While there are a few vendors and/or custodians espousing a front-to-back office solution, I find it's easier said than done, especially for large, complex asset managers. The fact is, a single vendor is going to be hard pressed to deliver the required functionality across all asset classes and processes.

Less Isn’t Always More

It has not been a happy new year for thousands of employees at State Street, BNY Mellon and BlackRock. In response to rocky markets, they've all elected to cut staff—and judging from the various press releases and news on the street, they are all following a similar playbook in their messaging; eliminating redundancy, fueling growth, simplifying processes, focusing on low cost centers. Apparently, "less is more" is back in style. I understand the need to focus on profit margins, despite the fact that the asset management industry is relatively healthy when compared to other business sectors. To be candid, I find the layoffs and unrelenting cost pressures and margin focus quite troubling. Ours is an industry that relies on talent and innovation, and given the news coming out of several blue-chip behemoths in the marketplace, what is the message that we are sending to the future workforce? In a competitive job market, being able to attract talent is paramount to the success of most firms. Job seekers that may be comparing offers from GAFA vs a career in financial services are taking notice.

The Cloud

On-premise software deployments are now officially a thing of the past. Asset managers of all sizes and shapes are finally moving to their rightful destination: the cloud. Software vendors and service providers alike are investing heavily in cloud native technologies, which will ultimately be a true game changer for our industry. I have often referred to our industry as moving at a glacial pace when it comes to technology adoption, especially when compared to other sectors that have been disrupted time and again as a result of true innovation. Cloud-based applications hold the promise to finally catch us up with the rest of our tech-driven world. Lengthy and expensive upgrade projects could be a thing of the past; rapid software updates will be pushed out and available on demand; asset managers will partner with their software vendors via an agile ecosystem that will benefit all parties. Sounds Utopian doesn't it? Well, for all the talk in the past few years about blockchain, AI, RPA and other potential disruptors, it's the cloud that offers the most potential for true impact in our industry in the near term. 

Several other topics could have made the list—firms adopting hybrid operating models; custodians rolling out outsourced trade execution platforms; walls coming down across the front, middle, and back office; digitalization moving from trend to reality (necessity); fintech disruption continuing to evolve, and in some cases, devolve. Happy to debate and discuss any of these views. GO PATS!