Consolidation in the asset servicer market is rife, and with the potential of reduced competition, asset servicers are having to look at innovative ways to differentiate themselves. This has led to an increase in the breadth and number of strategic partnerships forming between asset servicers and software vendors and FinTechs. This article looks at drivers for this change, how asset servicers continue to innovate technology underpinning their offerings, and what an asset manager should be looking for from their asset servicer.
Why do Service Providers need to transform their operating models & what are the key drivers?
Client demands and priorities. 2022 was one of the most volatile years in recent decades for asset managers. Faced with accelerated disruption and falling profit margins, asset managers need to strategically improve performance and maximize growth. Outsourcing continues to act as a critical facilitator to this strategy, offering opportunities to reduce expenses (by enabling managers to transition from a fixed to variable cost model) and increase the focus on their unique core competencies to create alpha. The expectations of asset servicers have increasingly grown; no longer viewed as merely third parties but strategic partners to support growth and innovation. Consequently, asset managers are looking to forge deeper, more strategic relationships with fewer partners, and they expect resulting partners to increasingly collaborate to better support their needs and growth.
Collaboration breeds innovation. Historically, asset managers have used asset servicers to solve for a specific problem. That relationship dynamic has significantly changed – they are asking their asset servicers to help redefine their operating model and contribute towards shaping their product and services strategic roadmaps. To achieve this, there is the expectation that the resulting partners increasingly collaborate with leading next generation technology and vendors to better support their growth and innovation across the full value chain. In an increasingly data-driven landscape, services fundamentally underpinned by data delivery have been a key development in founding these collaborations. For small to medium-sized managers, it has cemented the asset servicer at the heart of an asset manager’s operations.
Asset servicers are building a network of expertise via strategic partnerships, ensuring speed to market – a trend which is shaping the future of the industry.
By harnessing the cloud and AI and integrating leading technology into their product suites, asset servicers can offer new and innovative products at scale and speed – all through a single platform. Strategic partnerships provide asset servicers with the opportunity to expand their service offerings in high-demand, evolving areas such as ESG, Private Markets and Digital Assets – where asset managers are commonly struggling with inefficient and manual processes as offerings scale up and competencies grow.
Single platform operating solutions allow asset managers to make faster and more informed investment decisions. Further to operational benefits, asset managers can improve client service through better responsiveness and transparency across the full spectrum of their investment needs. In an ever-evolving industry, strategic outsourcing provides clients with a hedge against the potential future cost that comes with new regulation and client demands.
A Consolidated Experience – Taking Interoperability to the Next Level.
Providing asset managers with the operating model which allows them to make faster and more informed decisions requires a streamlined front-to-back data flow and the eradication of siloed and fragmented data. Interoperability and data integration have become a buy-side necessity. Some asset servicers are at the forefront of this market shift, striking several strategic partnerships across the value chain, all of which focus on breaking down traditional data silos by providing clients with easy access to aggregated data, analytics, and real-time insights across front to middle to back office functions – translating into a superior customer experience. Achieving true front-to-back integration and interoperability requires significant investment, and delivery is not fast. Though it will not be addressed in this article, the concept of standardizing and streamlining workflows across disparate activities is hugely challenging.
Asset managers should look for a partner with existing market leading technology, offering modular applications and a unified data model that are fully open and interoperable, enabling the integration of their own data and that of third-party services. Asset managers need to understand the integration methodology with strategic partners (i.e., “native” versus via an API) and what that means for their processes and users. Equally as important to the technology are the “soft” qualities: experienced staff that understand solutions and the asset manager’s model; the asset servicer’s reputation and track record of successful deployments; and the commercial structure for initial delivery and continued access to the data model.
New technology, evolving client demands and expectations, and unparalleled market conditions have paved the way for redefining traditional business process outsourcing in asset management. Asset servicing business models are changing to reflect asset servicer’s new role in the value chain as providers of modular and flexible solutions to their clients’ ever-expanding needs. Rather than asset managers contracting directly with technology vendors in a fragmented manner, they need to bring asset servicers on their product and services strategic journey, with the ultimate expectation that asset servicers partner with specialist technology providers to meet client needs. As part of this transition, asset servicers need to review their ‘out of the box’ offering, including their own key strategic partnerships, to ensure they not only remain competitive, but rather they position themselves at the front of the pack in a competitive industry. We believe that the asset servicers that are successful in forming these deep vendor partnerships will emerge as the big winners from the consolidation that will play out.
Alpha has supported the industry’s highest profile global outsourcing deals, supporting the implementation of more than $5 trillion in AUM through outsourcing. If this is a topic you would like to discuss further, please reach out to Alpha here.