Vectors of growth

When searching for growth within the asset management industry, there are a number of options to consider based upon your key strategies. Irrespective of the strategy, however, it is fundamental that the firm understands and builds a Target Operating Model to support the growth of the business. If your growth is to be achieved through acquisition (inorganic), this will require significant changes to the operations of both firms in order to realize the inherent value.

In these circumstances, you need to consider whether your existing operating model is ‘smart’ enough to efficiently (and fully) integrate the acquired firm, or whether in the short term you need to maintain a more singular operating model around the new business with a consolidation layer between the two, whilst developing a new operating model for the combined companies. On the other hand, if you are moving into new markets through organic growth the current Global Operating Model will need to be extended. New markets, either geographical or by product type, will bring different demands, often outside the capabilities of your current operations and technology.

Manufacturing or distributing?

The key question here is whether your business is concentrating on distributing existing products or actually manufacturing completely new products for these new frontiers. In other words, are you selling more of what you have to more people in far off places, or creating local products to sell in the local market.

Depending on which of these two options you take, it can have a massive impact on your Global Operating Model. If you are going to manufacture on a global scale, that is far more complex than if you are only going to distribute. One of the key themes to emerge from SimCorp’s recently released white paper, Pursuing Growth in Uncertain Times, is that it is vital to understand the differences in operational impact between manufacturing and distribution.

When you are dealing with a Global Operating Model, you really need to understand what your objective is and what you anticipate will be driving your firm’s growth, to ensure that your operating model is constructed to support this need. A critical element of the model is the technology stack. This endeavor should not be just about bringing efficiency to your current systems, it must also be about building a technology infrastructure that will support your growth in the future.

Style guide

There are different styles of Global Operating Models and technology strategy. One approach is to aim for a predominantly global technology infrastructure, i.e. one set of technology that supports key operations across multiple jurisdictions, asset classes and/or investment strategies. In reality, the circumstances are rarely present for an asset management firm to take this approach. A second style is where you have a regional technology stack, which is more proven and certainly more common. For example, you may have one in Europe, one in North America and one or two in the APAC region.

Steve Young, Citisoft

Steve Young, Principal at Citisoft

Recognizing the need for agility is key here. In the current environment, many asset management firms have a lot of point-to-point integration, which has evolved over the years and now resembles ‘spaghetti’. In such circumstances, if one platform is altered then changes must be made to all the other ‘upstream’ and ‘downstream’ systems. A ‘looser coupling’ of systems is much more flexible and agile than such a ‘hardwired’ coupling. A looser coupling might, for example, take the form of a ‘hub and spoke’ arrangement with independent systems plugging into an IBOR engine.

There is still a lot of discussion in the industry around the relative merits of best-of-breed and enterprise-wide platforms. In my view, both methods have their flaws and the better option is to take a hybrid approach.

Rationalizing systems

Much of the driving force behind the enterprise approach is the perceived need to rationalize systems. In essence, there are two ways to rationalize systems. You can instigate this rationalization by asset class/investment strategy, or by geography. I believe asset managers would find it more advantageous to do a ‘horizontal’ integration first, across asset classes or investment strategies, rather than a ‘vertical’ integration across multiple jurisdictions. This is generally a quicker and more achievable strategy.

Asset managers, particularly active ones, have to deliver more of what technology can’t do in an environment where their margins are shrinking. Firms will have to change their operating models and their technology stacks. All of this requires investment of key resources, time and money.

My fear is that a lot of asset management firms are instead just looking at efficiencies, predominantly in the back and middle office, but they are doing so with an eye on short-term cost savings. To drive lasting efficiencies through your firm, you need to invest. Better technology, better globalization, and so on. You can’t achieve significant efficiencies just by ‘squeezing what you have got’. Firms that follow such an approach will simply end up being unable to adapt to changing environments and new opportunities for growth.

Want to learn more?

Read Steve's Journal article: A Strategic Data Management Approach