Asset Management Software providers: Witnesses and actors of a decade of changes
When one takes the time to look in the rear-view mirror, crises can appear as crucial agents of change. The 2008 financial crisis had a defining impact on asset management companies and their business models. Asset management Software providers (the likes of Morningstar, Aladdin or SimCorp) have not only been at the forefront of these changes, better yet they have been privileged witnesses and actors. Their offering reveals in striking detail the structural transformations that have affected asset management companies.
So what insights regarding the development of the asset management industry can we glean by monitoring the software providers offering over the past 10 years? We spotted two key lessons: first, the emergence of product engineering departments and secondly the growing transformation of the investment management companies’ business model.
The emergence of Product Engineering functions
One of the key transformations experienced by asset management companies this last decade is the emergence of the product engineering teams. Software providers have not only accompanied the emergence of the product engineering departments but also strengthened it by turning them into a central repository for the whole asset management company, sitting at the crossroads between Front office roles, sales, compliance and back office functions.
In the context of the credit crunch, capturing investors has been increasingly difficult for fund managers. Thus, better positioning and tailoring their products so as to answer the needs of increasingly scrutinous clients is paramount. That has been the objective of the product engineering team. Performance monitoring, asset class quantitative studies, and fund structuring have been at the forefront of these teams’ priorities. Software providers like Morningstar or Europerformance have focused on launching solutions that are clearly concentrating on achieving these tasks and allowing for a “fine-tuning” of the funds. Europerformance and its “Engine” solution helps in the definition of peer groups or asset class indices whereas Morningstar and its famous “style box” helps in structuring and layering the fund.
More importantly, the software providers recognised the crucial dimension of data for Investment Management functions broadly speaking and for Product Engineering teams in particular. Indeed, they have been the at the forefront in the design of “data repositories” and “historical track records” making data management a crucial component of the product management tasks.
The growing transformation of the investment management companies’ business model
The second structural transformation currently impacting asset management firms is the reshuffle and reconsideration of the traditional front-to-back cycle. We are now increasingly seeing bulge bracket asset management companies arranging themselves by product-lines with fund managers, sales, compliance and fund administrators all part of the same organisational unit.
Up until now, asset management companies structured their organisations by mirroring a unique front-to-back approach. There was only one possible organisation and it was following the classic front-to-back process. The 2008 crisis and the subsequent push for rationalisation and cost cutting revealed that this model wasn’t adapted to the different types of funds and management. Thus, emerged the simple idea of arranging the asset management company not along the lines of one definitive front-to-back cycle but along the lines of the products proposed by the firm.
Software providers played (and are still playing) an important role in this as they proposed specific models and solutions for Socially Responsible Investments or Exchange Traded Funds. They enabled the reshuffle of asset management companies towards a network model and strengthened the synergies within each Product-based business-line. For example, Aladdin, Blackrock’s famous software solution for asset management, capitalised on its deep exposure to the ETF business and turned into a flagship product in this field for virtually every investment management company.
The 2008 crisis marked a defining moment for the Asset Management industry. It unleashed a decade of changes that impacted the structural organisation of the firms. Software providers have been at the same time witnesses and actors of these changes. They have adapted their offers to reflect the emergence of new teams concerned with the tailoring and fine-tuning of the funds and have pushed for the reshuffle and reconsideration of the traditional business model of the Asset Management company. Beyond their primary role as auxiliaries, software providers are increasingly turning into agents of change in the Asset Management industry. Monitoring their offers and their proposals is also a way to monitor the trends and dynamics modelling the industry.