Riding The Wave or Getting Caught in The Undertow?

We asked Meera Jessa and Ultan Geraghty, Aladdin’s two Co-Heads of Client Engagement in the Americas, to weigh-in on the current state of play for asset managers and asset owners—what institutions should be considering when it comes to their tech stacks, how risk management has evolved, and the questions that all market participants need to be asking of their vendors.

HOW HAS INVESTMENT MANAGEMENT CHANGED IN THE LAST YEAR?

Meera: The rise in interest rates and the downward turn of the markets has resulted in investment managers having to change the way they operate to maintain growth and profitability.

In our view this change is being driven by digital innovations like artificial intelligence (AI), disruption of global supply chains, and rising energy costs—all under the backdrop of a global financial system that is constantly contorting and evolving. Meanwhile, we are seeing the growth of passive funds and alternative asset classes with investors wanting more access to investments that diversify and provide profit opportunities. And finally, M&A activity will continue, and it won’t be surprising if we end up with more mega investment managers across the industry.

Ultan: The industry is navigating headwinds on multiple fronts. As Meera alluded to, persistent inflation is driving an associated search for value that is unlike anything seen in recent decades. This is occurring in a macro-environment which is also extraordinary; the backdrop of a war in Europe as well as increased polarization in arenas such as the US Debt Ceiling negotiations, net zero policies and governance frameworks.

From an investment standpoint, we have observed that many institutional investors are looking to double down on specialty asset classes like private credit, and this is driving a new round of M&A. Simultaneously, there has been a flight to cash as rates increased with attractive returns available on near cash instruments like Treasury bonds and CDs.

Asset owners and wealth clients are increasingly looking to consolidate third-party investment partnerships. Those managers with one-stop-shop offerings who can combine vehicles like ETFs and customization with dynamic asset allocation and advisory services are in a strong position to capitalize on these trends.

HAS RISK MANAGEMENT EXPANDED BEYOND TRADITIONAL ROLES OR TEAMS?

Meera: Risk management across the whole portfolio is becoming more relevant as we navigate events such as the banking crisis. We have seen the need to answer questions at the click of a button versus having to aggregate data through multiple systems. With that immediacy and consolidation, risk management is now so much broader and complex, from large-scale digital transformations, navigating AI’s opportunities and perils, and the rise of the citizen developer—not to forget the geopolitical factors that Ultan mentioned.

Ultan: Organizations are embracing a culture of enterprise risk management. Measurements of investment risk are being considered in direct correlation with operational risk controls as well as governance oversight. Increasingly, they’re expanding definitions of risk to include new factors such as the physical and transition risks of migrating to a lower carbon future.

Investment risk is being embedded more consistently across the gamut of the whole portfolio of public and private assets. This naturally requires integration of risk capabilities and normalization of measurements to ensure consistency of evaluation.

WHEN IT COMES TO TECHNOLOGY FOR ASSET MANAGERS AND ASSET OWNERS, WHAT IS THE COST OF STAGNATION?

Meera: The cost of innovating and streamlining versus building workarounds on top of legacy technology is the constant battle firms face. However, resisting the rapid technical innovation swirling around us will result in higher technical debt and operating costs. Working with technology practitioners with a proven track record across the investment cycle will help in the decision-making process as well as ease complex implementations.

Ultan: As the adage goes, if you don’t move forward, sooner or later you begin to move backward. While it can appear appealing to retain technologies that meet minimum requirements, the result can be a compounding negative effect on delaying these decisions. Those who are open to innovation and are less afraid to be first movers with technology, may be able to operate with lower, long-term operational, and total, costs.

TODAY, WHAT TYPES OF QUESTIONS SHOULD ASSET MANAGERS AND ASSET OWNERS BE ASKING THEIR TECHNOLOGY PARTNERS OR VENDORS?

Meera: Can you adapt and anticipate the trends to help me reach my objectives and deliver to clients?

Can I trust you?

The industry is changing rapidly, our clients will need a technology partner that will be in the thick of it with them—and be able to survive the turbulence. For example, if you think about the recent banking crisis, we wanted our clients to feel exceptionally prepared. We worked to quickly deliver market-driven scenarios and tools on the Aladdin platform to help clients assess their exposures. This responsiveness allowed Aladdin clients, in turn, to deliver timely insights and value to their clients .

Ultan: Agreed, I would also add that they should ask: Will you be there with me in five to ten years?

It is critical to identify organizations who have long term skin-in-the-game. While the pace of technology transformation has accelerated through the last decade, we believe the industry is about to undergo a significant change once again with the inevitable pivot toward AI and continued march of machine learning—the latter of which both Aladdin and eFront platforms have long track records of responsible utilization and application.

IN THE MARKET AT LARGE, WHAT ARE THE BIGGEST INNOVATIONS THAT ASSET MANAGERS & ASSET OWNERS SHOULD BE TAKING ADVANTAGE OF?

Meera: The trend of generative AI, digital currency, and the continued rise of the citizen developer will certainly transform the industry. We shouldn’t forget the foundational components where innovation will continue to be important such as access to federated data and world class analytics. I would be remiss if I didn’t mention the war on talent—it’s the people behind the tech that make these innovations possible.

Ultan: Generative AI will be transformational for the world at large and for the financial industry more specifically. There are many exciting unlocks available. This will quickly move from emerging evolutions, like removing bias in financial modelling, to a full-scale revolution of an industry and the roles that skilled professionals play.