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BI-SAM Insights
The asset management industry: key
current challenges and operational answers

Investment management is under great pressure. Volatle markets make
accurate forecastng impossible and the growth in regulaton increases the
cost of doing business for all partcipants. Investment managers must fnd
new ways of working to achieve more with less. Technology has a vital role to
play in helping investment managers proft from change. We predict a new
role for operatng platorms in the investment management frm of the future.
The global investment management industry is undergoing unprecedented change. In practce,
change means that investment management frms need to do new things, but it also requires
them to do things in new ways. So what are the prime drivers? Change takes many diverse
forms and stems from numerous diferent sources. However, at a high level, change is either
driven by internal or external factors, or a combinaton of both. Successful asset managers are
those that embrace change by reengineering their businesses to meet new challenges created
by change. Here we consider several of the key drivers for change within the asset
management industry and propose some new, systematc ways of beneftng from it.

On the face of it, internal drivers of change arise from a business need to do things diferently
in response to factors that are inside the business. In recent tmes, this has focused on a need
to reduce costs and increase efciency to maintain proft margins. External drivers arise from
the challenges posed by a changing business landscape, over which the individual investment
management frm exerts no control or infuence.
Drivers for change in asset management

Various independent research studies suggest that one of the major drivers for change is
pressure on proft margins. In recent years, the entre industry has had to endure compressed
margins. Why?

As market volatlity has increased signifcantly, investment managers have been unable to
project revenues confdently. And at the same tme, they can no longer make assumptons about
market growth or potental. Fierce competton has challenged traditonal business models, so
investment managers have to work harder than ever to win new mandates and to protect
existng revenue streams.

BI-SAM Insights - The asset management industry: key current challenges and operational answers
In parallel, costs have become harder to measure and more difcult to contain. The main
cost pressures include the:
Increasing quantty and complexity of regulaton, such as MiFID II
Propensity to expand and diversify product ranges
Need to customise the client experience
Growth in complexity of investment strategies and supportng operatonal processes.

The combined efect of revenue and cost pressures is squeezing the proft margins of most
investment managers. This creates internal imperatves for changes to boost efciency and
increase business agility.
External factors have also changed irreversibly, creatng a compettve landscape with many
new challenges.
For example:
Clients have become more demanding and risk averse
The need for increased transparency in investment and operatonal processes has
become more pervasive
Clients want a more customised, personal investment experience and many want to
be more informed about the management process
New distributon channels have emerged that require new investment in technology.
The impact of change on investment managers

The combined efects of internal and external drivers for change are having a major impact
on the shape and compositon of the entre industry. This is changing the way investment
managers view the operatng platorms that support their businesses. In the past, operatng
systems were ofen perceived as an unavoidable cost of doing business. They were seldom
regarded as an integral component of business strategy or source of value. However, all that
is changing fast

With margins under pressure, investment managers are adoptng a more holistc approach to
operatng platorms and the business processes they support. Technology has become a
major determiner of success throughout the entre investment management process, from
investment strategy through to client communicatons and reportng.
Once deemed a necessary evil, the role of the operatng platorm has shifed to centre stage
and is enjoying greater prominence. Investment management frms that identfy the strategic
importance and value of their operatng platorms will be well placed to meet future industry
challenges. So what do they need from these platorms?

Investment managers should look for six main sources of value:
1. Risk Management
2. Identfying and describing the value delivered to their clients
3. Customising the client experience to meet the requirements of individual clients
4. Reducing the tme to market for new products and processes
5. Operatonal scale
6. Data Management


Market conditons and
cost pressures create
an internal imperatve
to boost efciency and
increase fexibility.










The increased
requirements of clients
and regulators impact
asset managers view
of their operatonal
platorms.
2 July 2012

BI-SAM Insights - The asset management industry: key current challenges and operational answers
Risk management

Investors have become much more risk averse in recent years. This is a direct consequence
of the global fnancial crisis that developed throughout 2008 and 2009. During this tme,
investors sufered real losses in the value of their assets with lastng consequences:
It became clear that investment managers had inadequate platorms for identfying,
measuring and controlling investment risk
The collapse of Lehman Brothers and the signifcant difcultes experienced by other
major fnancial organisatons narrowed industry focus on operatonal risk.

Investment managers now have to be able to demonstrate to clients and to regulators that
they have excellent enterprise risk management processes and procedures, covering all
aspects of investment and operatonal risk. All operatng platorms must provide a high level
of integrated support for the management of investment, business, and operatonal risk.
Delivering value to clients

Many investors have experienced a loss of confdence in investment managers ability to
deliver real value through their investment processes. Managers need to demonstrate how
they create value for their clients in order to regain this confdence. Operatng platorms will
play a vital role in providing in-depth analysis of investment decisions as well as identfying
the underlying reasons for good and bad investment performance. This informaton can then
be fed back into investment processes to increase the value delivered to investors.
Customising the client experience

Both individual and insttutonal investors are feeling more fnancial pressure than ever
before. Their fundamental concern is that current investments are insufcient to meet their
future liabilites or needs. It is the scale of the concern that is diferent for insttutons
compared to individuals: individuals are just concerned about their own personal situatons,
whereas insttutons are concerned about the prospects for hundreds, thousands, and tens
of thousands of individuals.

In any industry, when clients or customers become concerned about the service they are
receiving, they demand higher service levels. Investment management is no excepton and
clients of investment managers are demanding a customised experience. In partcular, they
want to know that their managers are:
Aware of their specifc needs and constraints
Delivering value in line with their specifc needs
Managing risk in line with their specifc constraints.

In practcal terms, clients want bespoke services and reports from investment managers and
are no longer content with generic commentary and market updates. To meet this
requirement, managers need operatng platorms that are capable of customising all aspects
of the client experience.


The fnancial crisis
experienced since 2008
highlighted the need
for more transparency
and beter risk
management.











Investors specifc
needs have to be taken
into account in
communicaton and
reportng.
3 July 2012

BI-SAM Insights - The asset management industry: key current challenges and operational answers
Reducing tme to market

Competton has intensifed throughout the investment management environment. At the
same tme, clients have become more demanding. Many are disappointed by the
performance of their investments and are putng pressure on managers to deliver
improvements in both performance and servicing, sooner rather than later.

For this reason, managers need operatng platorms that are robust and adaptable. In
practcal terms this means operatng platorms that are rich in functonality and for which a
strong investment programme exists to ensure that the richness of functonality keeps pace
with industry changes and trends.
Operatonal scale

All the above challenges are aggravated by the need to control costs. In the past, many
investment managers have coped with the challenges of risk management, delivering value,
customisaton, and reducing the tme to market by increasing headcount and manual
processing. Ofen this has been a tactcal measure while more strategic solutons are
implemented. However, in many instances, manual processing has been accepted as a long-
term soluton. With current cost constraints, reliance on manual processing is no longer an
opton. Investment managers require operatng platorms that are capable of reducing the
overall level of manual processing.
Data management

Data management has become a major and increasing challenge for all investment managers.
As investment strategies become more sophistcated, all managers must deal with an
increasing volume of complex data. Accurate and tmely data is a crucial component of
success and serves many functons, specifcally to:
Manage risk
Deliver value
Customise the client experience
Reduce the tme to market for new products and services.

At the same tme, the demand for greater transparency requires investment managers to
provide more detailed reports containing the data underlying investment and operatonal
processes. The data management challenge has also been increased by reduced tolerance
levels in respect of data integrity issues.

Data management has always been a challenge for many investment managers, but the
consequences of failing to meet this challenge have never been more serious.

To meet the data management challenge, investment managers need operatng platorms to:
Accommodate the increased volume and complexity of data that is now required by
their investment, client management, and operatonal processes
Facilitate much tghter integraton between the data management components of the
platorm and the applicatons using the data.


It is essental for asset
managers to reduce
both operatonal risks
and costs through
strategic as well as
tactcal actons .











It is all about data:
everything relies on
how data is managed,
checked, controlled,
monitored.
4 July 2012

BI-SAM Group
Head Ofce: 43/47 Avenue de la Grande Arme, 75016, Paris
Bndicte Godet, Marketng & Communicaton Manager
marketng@bi-sam.com
+33 (0)1 42 85 70 85
www.bi-sam.com
Copyright BI-SAM 2011

BI-SAM Insights - The asset management industry: key current challenges and operational answers
Conclusion

The past fve years have seen fundamental changes in the asset management industry and in
the way investment managers engage with their clients. These changes have led to a
signifcant increase in the importance of middle ofce business functons to reduce costs,
monitor and control risks, increase revenues, and improve the overall level of client
satsfacton.

All of this means that investment managers need strategic operatng platorms to deliver
more value, and to do so in several ways. Business functons such as risk management,
performance measurement, client servicing, and data management have become crucial to
business success. These functons, along with the value-creatng investment teams, can make
a vital contributon that can boost proft margins while ensuring that frms remain closely
aligned with changes in the asset management landscape. And it is these functons that will
have more infuence on the future design and implementaton of strategic operatng platorms
within investment management frms.
With more than 25 years of experience gained in insurance, engineering, sofware development, and investment
management, Peter has excellent knowledge of performance measurement and analysis. Prior to joining BI-SAM, he
was Managing Director of Investt since 2004. He has also spent 8 years at Deutsche Asset Management, where he
held a number of roles in IT and in the business. In his last role at Deutsche Asset Management, he was Managing
Director, Performance and Client Services. Peter has extensive project management experience on a wide range of
projects, and has directed many complex strategic projects, both from within IT as a project manager and as a
business sponsor.
Author: Peter Ellis, BI-SAM EMEA COO