Accelerating Data Strategy Transformation for Asset Managers

 [An update to content originally published on October 28, 2023]

Key considerations to weigh when formulating your data strategy

Growing business needs, new products, regulatory changes, and more are compelling institutional asset managers to future-proof their data strategy and platforms. An accelerated transformation is imperative to enhance return on investments, achieve business outcomes, and build momentum.

As the industry moves toward a more digitally driven era, some asset managers are finding their organization at a crossroads. Most are keenly aware of the macroeconomic, microeconomic, and geopolitical factors impacting their investment performance, squeezing fees, and increasing operating costs. However, the real obstacle lies in the outdated legacy platforms that hinder their progress.

In the front office, firms still conduct OTC and structured product trades through phone calls and manage positions in spreadsheets. The picture is often worse in the middle and back office where firms use aging technology stacks to manage complex in-house and outsourced workflows.

As digitalization proves to be beneficial for other sectors of the financial industry, asset managers now face a critical decision: modernize programs or risk falling behind. By adopting modern digital platforms, asset managers are better positioned to streamline operations, reduce costs, and generate greater value for their clients.

Creating a robust data strategy flexible enough to evolve with an organization is critical. But where should firms start?

The business needs driving transformation

With everyday business challenges, such as the rollout of new products, obligations to adhere to stringent regulations, or planning for the upcoming transition to T+1 settlement, a robust data strategy has become non-negotiable. Forward-thinking data strategies enable asset managers to keep pace with evolving business requirements.

Several factors are driving the urgency to accelerate data strategy transformation. To begin with, asset managers must justify their investments in data strategy, including costs and tangible business outcomes. Providing data access to everyone in an organization – often called democratization of data – is also vital to improving front-, middle-, and back-office operations.

The new data imperative

Industries outside of finance have been swiftly modernizing their systems to enhance efficiencies, reduce capital costs, and elevate performance. Drawing inspiration from these sectors, investment managers are recognizing that digital transformation holds the key to address performance hurdles. Leveraging the scalability and adaptability of cloud technologies can help institutions drive process innovation, gain valuable insights into market dynamics and client behaviors, streamline, and reduce costs through automation.

Getting the data aspect right is imperative. But for many firms, data is not the issue. Rather, it’s that data is often locked up in legacy systems and other function-specific data repositories. Fragmented infrastructures each with its own lifecycle of ingestions and proprietary storage formats can make it difficult to ensure data is available when it’s needed.

To build or to buy

As the data landscape changes, the tools necessary to make data useable must evolve in lock step.

A pivotal decision asset managers face in modernizing their systems is whether to build their enterprise data platform internally or buy a specialized platform. With advantages and disadvantages to both approaches, choosing the best fit depends on several factors.

The decision to build

Asset managers building their own solutions can align the platform to their unique business requirements. The decision to build reduces dependence on financial technology vendors and platforms. That said, even in this scenario, asset managers are dependent on general-purpose software platform vendors. With greater control over infrastructure, asset managers can make their own decisions about how and when to upgrade systems and can be confident they own their information. Building can sometimes offer potential cost savings. Freedom from annual vendor payments and vendor implementation costs means that firms can spend their investment dollars in other much-needed areas.

The decisions to buy

On the other hand, asset managers must also consider the disadvantages of building in-house. Building in-house requires a significant investment in talent, infrastructure, and maintenance – often underestimated components. It typically takes much longer to develop an in-house platform with a greater-than-expected investment. Firms cannot overlook the time it takes to build capabilities from the ground up, integrate various platforms and functionality, and test for functionality performance and scale. What’s more, institutions must be committed to maintaining and continually fine-tuning the platform.

RELATED READING: The Rise of the Chief Data Officer

Supporting expanding data needs

There is a third option for asset managers deciding whether to build a platform in-house or work with a partner: buy and build on top.

Working with a trusted partner can offer asset managers the technical and strategy know-how. An experienced partner offers deep domain expertise and knowledge across a broad set of use cases.

Leveraging a specialized financial data platform provides asset managers the core capabilities necessary to implement a solution that works out of the box – ultimately accelerating their time to market. These build-on-top capabilities allow customization, support to build out of proprietary analytics and workflows, and bespoke integration.

Typically, total cost of ownership is also lower because asset managers avoid the elevated expenses associated with internal development and maintenance. In our experience, the annual total cost of ownership can be 50-60% lower than a pure build approach, which doesn’t include the large upfront costs to build. As a result, the buy-and-build-on-top model is the top choice for many institutions. In fact, we’re increasingly seeing firms that once chose to build their own platform pivot to the buy-and-build-on-top approach.

As asset managers evaluate their options, they must ensure they choose a reliable partner, as that will have a significant impact on the data platform’s success. It’s also crucial to confirm the financial data platform they select offers the necessary capabilities to build on top.

Client spotlight: Buy and build on top

Consider the case of a large multi-asset manager that wanted to modernize its data strategy and roadmap. As part of sunsetting multiple legacy data management platforms, they chose Arcesium’s financial data platform with a clear intention to build on top. Their rationale was clear: it was important to focus their employee resources on value-added analytics, core workflow management, and implementing high-value business use cases. Arcesium’s specialized financial data platform offered them a host of core capabilities and the necessary components to build on top.

READ THE FULL CASE STUDY: Transforming Enterprise Data Management

Transforming investment management platforms

Migration to a cloud-based platform offers enormous benefits to institutional asset managers and many have already made the leap. However, it is by no means an easy task and requires careful planning and expertise to ensure the right data is migrated correctly. Without that, weaknesses within the data held on-premises may be simply relocated into the cloud  environment, potentially replicating drawbacks that prompted the switch in the first place.

Entrusting that work to a third-party technology and data provider is invaluable to turn inefficient, ad-hoc systems into a contemporary solution. Purpose-built data platforms can provide institutional asset managers with data-centric tools that ingest, integrate, and validate investment lifecycle data and elevates collaboration, control, and trust in data across all levels of an organization.

What decision is best for your firm?

For institutional asset managers looking to transform their data strategy, a buy-and-build-on-top strategy can accelerate time to market, maximize resources, and optimize total cost of ownership. A buy-and-build-on-top approach can be a cost-effective and efficient way to transform your data strategy and achieve critical business outcomes.

Author:
Mahesh Narayan
Mahesh is Institutional Asset Management Segment Head Mahesh is Arcesium’s Institutional Asset Management Segment Head. In this role, Mahesh oversees Arcesium’s capabilities for institutional asset managers, including the Aquata data platform, middle- to back-office solutions, and associated financial operations. Follow him on LinkedIn.

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