Asset Servicer Future Gazing – The Horizon In Clear View

Bastiaan Aalders, Alexander Bowie, Sara Kabir

Outsourcing has significantly matured over the last decade with Asset Managers, and the expectations of Asset Servicers has greatly increased. To continue delivering a competitive outsourcing model with the best value, Alpha recommends that Asset Servicers focus on three core areas: Data Strategy, Enterprise Operating Model Design and Implementation. In Data Strategy, Asset Servicers have a significant advantage over FinTechs and industry-focused data solution providers since they already have valuable data within their ecosystem and present as the first port of call for Asset Managers in considering their Data as a Service needs.

Where are we now?

We are seeing a significant trend from Asset Servicers looking to provide services further up the value chain. At the same time, Asset Managers are extending their models to become technology-centric organisations, with data being central to reaching beyond traditional core areas. Now, Outsourcing, Enterprise Technology and Data are coming together.

Evolution in Outsourcing Operating Models:

While cost and fee pressures, regulation, and growth in AUM continue to be key drivers for Outsourcing,  Asset Managers are transitioning from “Best of Breed” (applications acquired to serve a specific function across front to back office) to “Data Centric Enterprise Wide” operating models; further leveraging solutions offered by Asset Servicers. At Alpha, we believe there are three core themes underpinning the transition towards an Enterprise Model that Asset Servicers should be thinking about:

1. People:

Asset Managers continue to focus critical resources and skills towards core value-add, revenue-generating services, whilst leaning on Asset Servicers’ know-how to fill knowledge and skill gaps in the workforce. We have seen an accelerated trend in Asset Servicers plugging capability gaps, offering broader outsourcing services and accessing new talent via partnerships and M&A activity such as State Street’s recent acquisition of Mercatus extending their Data as a Service proposition to Private Markets.

2. Technology:

Asset Managers are evolving their operating models and heavily investing in technology to accelerate the shift from “Best of Breed” to “Data Centric Enterprise Wide” operating models. The effect of new technologies like Snowflake are shifting the outsourcing offering paradigm, enabling new and easier ways to manage and distribute data to clients whilst providing a whole new deal category by offering outsourcing of data warehousing or a whole outsourced data platform – propositions we have seen in recent Alpha engagements. Asset Servicers are responding to this transition by accelerating investments in front-to-back provider solutions and developing partnership models that will provide Asset Managers with a fully integrated technology stack combined with business services.

3. Data as a Service:

Data services continue to be a critical focus point, with many Asset Managers still being limited by legacy technology. Our recent data survey has taught us that Asset Managers are moving away from upgrading individual applications to building end-to-end data platforms. To meet Asset Managers’ evolving data needs, we are witnessing significant developments from Asset Servicers in front-to-back Data as a Service solutions (e.g. ESG data and analysis, real-time IBOR) replacing outdated and siloed systems. More recently, we have seen technology providers developing similar capabilities that enable data interoperability, with the vision to be able to create a single data storage solution in a shared ecosystem environment allowing data to be shared internally and externally in real time. For us, we see that the wrapping of managed services around the data solution is key for small and medium asset managers looking to maximize outsourcing and deliver the perceived benefits.

We have seen many Asset Servicers enter the market with new products and capabilities to serve, and improve, the operating models of their Asset Manager clients. We expect the maturity curve for new products entering the market, especially in the Analytics and Data Management space, to accelerate through the maturity curve faster than with traditional product areas.

Where to start on your journey?

If Asset Servicers want to live up to their promise of giving Asset Managers the best value for their people, technology and data, whilst also competing against FinTech’s who are starting to provide the same, or similar, services, Alpha recommends Asset Servicers should focus on three areas, allowing them to deliver a competitive outsourcing operating model:

  1. Data Strategy: Defining and implementing future-proof data strategies is a critical success factor. Getting the strategy right from the outset and ensuring you are adding value to clients will allow Asset Servicers to leverage core operational data to drive critical real-time insights and expand their product offering and generate revenue. Alpha has seen two approaches here, firstly Asset Servicers trying to bring to market new data offerings by tailoring and tweaking legacy technology. However the expectations, investment and need for data in the industry is more extreme than these tweaks allow. Secondly we have also seen and supported both Asset Managers as well as Asset Servicers in reviewing, defining and implementing best-in-class data strategies across their end-to-end business to rapidly overcome these limitations and deliver data services to clients in a flexible fashion.
  1. Enterprise Operating Model Design: The definition of the technology strategy in combination with Outsourced services will allow Asset Managers to make the best out of both their people and their technology stack. If Asset Servicers get this right, they will benefit from longstanding relationships with their Asset Manager clients. There is a downside to this though – if the Asset Servicers don’t invest in a truly streamlined enterprise operating model and instead have layers of APIs and different systems, they will end up jeopardising their ability to scale and will be less competitive. Less is more!
  1. Implementation: Securing an Outsourcing deal in combination with a data-centric enterprise operating model is a big effort but successfully implementing and delivering the deal can often bring about more challenges and requires rigorous implementation planning. Unfortunately, a lot of these deals go over budget and don’t deliver to the agreed plans due to a lack of rigour. Alpha has experience running the largest and most complex Outsourcing engagements in the industry, supporting both Asset Managers and Asset Servicers; from legal contracting, service due diligence and operating model definition through to migration planning and transitions.

The evolution of Asset Servicer and Asset Manager operating models to bring together business process outsourcing, enterprise technology and data is a key in advancing our industry and is more and more prevalent in our client discussions.

About the Authors

Alpha has supported the industry’s largest and highest profile global outsourcing deals over the past decade and longer, 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.

About the Authors

Bastiaan Aalders

Bastiaan has over 20 years’ experience in Financial Services and is the Head of Alpha Financial Markets Consulting in the Netherlands as well as the head of Alpha’s European Operations practice. Between 2005 and 2018, he has held several senior positions within Global Custodians responsible for Front, Middle and Back-office product development, Target Operating Model design, test & migration programs and large due diligence projects. Bastiaan knows and understands the Asset Management industry and its players. He has experience with complex front to back operating models that are required in this changing landscape from a functional and technical perspective and is able to navigate through the full Investment Management life cycle.

Alexander Bowie
Senior Manager

Alexander is a Senior Manager at Alpha and has over a decade of experience working on outsourcing transformation programmes. During this time, he has worked on and led programmes across the transition lifecycle from strategic operating model design through provider selection and transition implementation including across first and second-generation transitions. He has worked with asset owners, asset managers and service providers across the UK, Europe and North America contributing to some of the industry’s most exiting global programmes.

Sara Kabir

Sara is a Consultant at Alpha with over four years of experience in the financial services industry. She is currently working for one of the biggest global Asset Servicers on a large-scale middle office outsourcing deal. During this time, she has worked on the people and service lift out, middle office due diligence and defining the target state operating model as well as service level agreements.