As the institutional investment market grows, operating models must evolve to meet changing needs. What are the considerations?

Core changes within the institutional investment market are prompting organisations to reassess their foundational operating systems to determine what they need to upgrade or build, or who to partner with to meet their changing needs.

At the recent State Street Growth Summit, we hosted a series of discussions with investment firms across Asia Pacific to uncover the fundamental themes driving industry transformation. We also spoke about the various approaches firms are taking and examined some of the key factors that are driving the evolution of operating models. Common drivers among firms seeking to upgrade their operating models include:

• Opportunities provided by emerging technology
• Transitioning more investment functions in-house
• Challenges of managing scale
• Increasing regulatory requirements
• Enhancing data management
• Improving support functions
   

Emerging technology

Technology is revolutionising the way organisations function – automation and artificial intelligence are unlocking workflows, insights and efficiencies, which in turn are opening up new product and service channels. Similarly, cloud-based technology has enabled a fundamental shift in how technology is deployed and can be used by different stakeholder groups. These factors when combined impact the relationship between asset owners and asset managers.

Superannuation funds in Australia have acknowledged that they are increasingly acting more like asset managers. For example, when funds elect to internally manage some of their assets, with a view to minimising fees while maximising returns, they incorporate additional requirements and functions that necessitate re-platforming. As funds take these transformational steps, there are key factors to consider, including whether to build capabilities internally or partner with an established provider, as well as data management, costs and round-the-clock support.

Response to scale

Managing scale for funds that are rapidly increasing in size and complexity – either through organic growth or through merger activity – is a complex task. As funds continue on their growth trajectories, they need to consider whether their existing operating environment will afford them the ability to scale efficiently and cost-effectively whilst minimizing any unwanted risk in the process.

Increasing regulatory requirements

Regulatory requirements are growing exponentially – and increased reporting and oversight continues to place greater demand on organisations’ systems. Are they nimble enough to meet the requirements? Can they execute the task efficiently? What is the cost of regulatory compliance? Governance alone is a reason that many funds are seeking to upgrade their current operating models.

To address these concerns, some organisations have opted to bring all investment functions under one internal stakeholder. This includes building out functions including whole-of-fund, private markets and listed asset capabilities, as well as bringing in enablement functions to address the lack of an investment platform internally.

Improved data management platforms

We’ve found that all considerations ultimately circle back to data management. Data is at the heart of every investment firm’s operations, and an effective data management strategy can help funds uncover new insights, simplify their operating model and better serve their clients.

Firms are searching for an enterprise-level platform that supports them in being a data-enabled entity. They want the ability to give their investment teams the right data to make the best possible decisions for their members and beneficiaries.

Learn more about this topic in our latest whitepaper, Democratizing data access for investment firms, and video interview with Jack Dahlstedt, our global head of Sales and Solutions for State Street Alpha^®, where he discusses the challenges and opportunities for firms harnessing the data age.