What’s Driving Change Agendas for Asset Owners?

While there are many factors at play, one of the biggest drivers of change programs for asset owners this year is coming from the front office. Front office teams are increasingly demanding new functionality to enable evolving investment strategy which can place significant pressure on technology and operations teams to deliver the flexibility they need. These demands require technology changes across the front, middle, and back-office functions. They are to be implemented at pace, seamlessly efficient, and scalable to the Nth degree—simply put, the front office wants to redefine operating models and implement a technology plan to fit their investment strategy.

Asset Allocation in Focus: A Front Office Priority

According to Citisoft’s recent survey of 179 global asset owners and managers, in partnership with ValueExchange, 50% of asset owners in the front office utilise OMS systems for their whole fund view. More surprisingly, an increasing number still use spreadsheets as the most common tool for asset allocation (up from 40% in 2022 to 55% in 2023).

Yet before long, we will see a significant drive to provide change programs heavily focused on operational improvement. The survey results indicate that 37% of asset owners plan to make changes across their investment cycle (front-to-back) over the next three years—and top of the list is asset allocation. However, this drive to push innovation within the investment function should come as no surprise, as the survey indicated that asset allocation projects are driving innovation but are the least likely to reach successful execution. 

Key Drivers of Change: Prioritizing Redesign and Scalable Technology

Should the demands coming from the front office result in higher volumes of data, technology and operations teams need to ensure that systems can scale effectively to handle the load without compromising performance. This is reflected in our survey results. Asset owners indicated that operating model redesign, operational efficiency, scalable technology, as well as the upgrade to current systems were the key drivers on their current transformation agendas.

Asset allocation isn’t the only function being pushed for change from the top. The front office is increasingly placing emphasis and focus on ESG, IBOR, and cash management while reconciliation functions are being scrutinised for improvement via technology change. With project activity set to double next year alone (41% of respondents stated they were making major investment operations changes in 2022 while 82% said the same in 2023), the drive from the front office to sanction change across the chain is picking up pace and being made wholesale. These aren’t paper-over-the-cracks-temporary solutions for a quick tactical fix.

Operating models are being redesigned holistically from the top down with a long-term strategic view being adopted. There is a wide consensus amongst asset owners that enterprise data (data integration and data lakes), outsourcing, and systems replacing spreadsheets should be the areas to gain investment to achieve operational change. Front offices recognise the need for change investment and those decisions are being made now.

Efficiency Across Regions: Global Tech Upgrades Amid Risk and Regulation

As with any investment, the front office wants the most bang for their buck. A key priority is to ensure these tech upgrades are globally efficient and homogenous across offices around the world. The APAC region is seeing the most pressure to submit to change; in particular, to help achieve growth into new asset classes, deliver scalable technology changes, and address immediate concerns around operating model redesign. Within both EMEA and North America, respondents are looking to grow and scale efficiency through expandable technology changes and upgrades.

Risk and regulatory pressures will continue to further drive a degree of transformation, as survey results revealed that 67% of regulatory reporting is conducted by spreadsheets with only 17% outsourced. 

The rationale for operational change can almost always be justified by a handful of reasons driving that decision, and error reduction is the biggest trigger for driving change whilst reporting is in the top three functional areas justifying that decision. There has always been pressure to conform to new regulations reporting and to ensure there are adequate frameworks in place to assess risk.

Due to the nature of regulations, there is a continuous upward trend with regulators demanding more transparency and complex data reporting, placing a huge reliance on firms to provide accurate and readily accessible data. Effective technology is needed to handle the multitude of data requirements and be flexible enough to satisfy any new future requirements demanded by the regulators. 

What Strategies Can Change Managers Adopt to Deliver Operational Excellence?

Without being reactive to front office demand, change managers need to be proactive in identifying gaps within operations processes and building viable cases to help solutionise these problems. Systematic risk and control framework assessments, process overviews, architecture, and resource workshops need to be conducted periodically at all operational levels to help identify key problem areas and bottlenecks. The process needs to be continuous to not only evaluate current technology stacks, but also as a control measure to bring new risks to the fore.

The motivation to push technology also has a more forward-looking function to help deliver operational excellence. Cost controls play a factor in triggering changes, and decision-makers are continually looking to balance inefficient operational costs vs. the investment spent now to make those processes more effective. Insights from the survey suggest that there is willingness to try to fix these problems via technology upgrades, which can replace legacy systems and spreadsheets, with the solutions needed to help drive increased data quality and scalable efficiency across regions. Change managers will need to evaluate how commercial relationships with software providers can help implement transformational change at all levels. 

A lack of resources and SME expertise still accounts for the main reasons why projects are blocked or make slow progress. Yet we are still seeing ancillary factors come into play here, such as the inability to change legacy systems, internal solutions that accelerate costs (data maintenance and systems architecture upkeep) and continuous scope changes. All of which can require change managers to explore external solutions.

Leveraging partnerships to aid in change initiatives is not only limited to vendors but also extends to consulting firms. Knowledgeable firms that have a pulse on the software and service provider market and deep expertise in key functional areas across the operations and technology stack, will play a key part in helping to answer build vs. buy concerns for change managers in 2024.

So which areas are front office demands driving change in? From our survey of over 179 asset managers, it is evident that the front office is driving rapid transformation via technology upgrades across their investment functions, with a particular emphasis on asset allocation.

The rationale for change is defined by the strong responses to drivers impacting change agendas today—operating model redesign and scalable technology changes playing huge roles in change for 2024. The persistent and increased use of spreadsheets (particularly for whole fund views and regulatory reporting) continues to draw pressure from the front office to be assessed for change. The further evolution of risk and regulations indicates that this function is still viewed as a concern by many, especially within the Pacific markets. However, redesigning operating models, upgrading to enable efficiency and growth ambitions into new asset classes remain the highest priorities across the asset management sector.

Citisoft was delighted to support ValueExchange in the execution of their 2023 Asset Owner Transformation Survey, which surveyed 179 asset owners and managers. Designed to provide the industry with a global perspective on how to map out transformation agendas, the survey sought to draw insights from asset owners of all profiles and geographies and explore the case for change, current areas of focus and the impact when realising innovation fails. Read our Key Findings.