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An Industry at an Inflection Point

Transitioning from a cost center to value generation 

By Stephen Collie, Co-Head of Client Delivery and Co-Founder, FINBOURNE Technology  

 Steve Collie, FINBOURNE Technology

We are living in a rapidly shifting environment, being bombarded with headlines of heightened volatility, inflation uncertainty and geopolitical disruption. Last week, the VIX hit its highest level in three months, amid concerns over rising rates and a recession.  

Meanwhile, the Federal Reserve continues to battle the highest inflation seen in the US since the 1980s and just last week, we saw the Bank of England take emergency action –  with a £65bn bond-buying programme to avoid a mass insolvency of UK pension funds. 

What does this mean for investment managers? On the surface of it, the industry is now balancing a tightrope of cost optimisation, while it continues to weather the storm, all while delivering more for less. With profit margins under pressure and the threat of drawdowns, performance is once again firmly in the spotlight. Being able to harness trusted and timely investment data across positions, portfolio, risk and exposure is proving more critical than ever. 

Under the hood however, is a spaghetti of legacy systems and architectures, duplicated interfaces, and accumulation of separate systems, leaving investment managers struggling to promptly respond to the market, to the needs of data-hungry investors and the increasing scrutiny from regulators. The cost of operating at this new level of transparency and speed, within the current status quo, is now too high to sustain. What was once nice to have, is now a need to have and here’s why… 

Big data = big problem 

Supporting the rising interest in sustainable investing, digital assets and private markets assets is bringing many firms reliant on legacy tech, to breaking point. These complex and unstructured data sets are proving tricky at best and impossible at worst. In short, firms need a data foundation that has the innate financial sense to understand nuanced data sets, and can provide an aggregated view of public and private markets. 

We know storing more data isn’t the answer to this. In fact, the industry has focused on hoarding data for too long and has now come to the jarring realisation that the capabilities for making these disparate data sets integrated, consumable and being able to derive meaning are missing. Much of the reasoning behind this comes down to the impact of technical debt and a lack of appetite for innovation (aka inertia).  

This insurmountable challenge has led to many firms experiencing the following challenges (to name a few):  

  • Data silos and inefficiencies e.g. duplicate purchasing of market and reference data 
  • Slow response and change management to regulation and market opportunities  
  • Difficulty meeting investor due diligence and regulatory reporting 
  • Inability to leverage emerging technologies and innovation to support future needs 

Innovation is not just about technology  

When we look to innovation to address these challenges, it’s important to understand it is not just about automation and scale, it’s about enablement of your greatest asset, your people. Being able to get highly trained and talented individuals back to what they love doing and what will add the most value to the business, is the kind of innovation everyone should be doing. 

Having experienced first-hand the pain that technical debt and inertia can cause, my colleagues and I set down a path to address the data dilemma across the investment chain. It’s why we decided to meet the low tolerance for risk by systematically bridging the gap between existing architecture and the future-state data stack, offering a strong and viable alternative to the multi-year, big-bang transformation projects that have occupied the industry for much of the past few decades. 

Challenging traditional constructs, we designed a Modern Financial Data Stack, in the form of a cloud-native, interoperable data store, that delivers organisations safer, better and faster data. It’s a trusted data fabric that solves the final piece of the puzzle – understanding and gaining value from the data that sits across existing systems. 

In real terms, it empowers different functions and entities in the investment ecosystem, so they can interpret and speak the same language. With data they can implicitly trust, asset managers can confidently create meaningful analytics for decision-making, and leverage emerging technologies, such as AI and ML, to extrapolate deeper insights.  

Critically, it eliminates inefficiencies across the investment ecosystem, for example allowing firms to avoid the need to make daily adjustments to strike the same shadow NAV as their custodian. Think about Google Translate – what did we all do before it came to being? It seems so logical now and yet hard to imagine a time before it. 

Evolution not revolution  

This isn’t a revolution but an evolution of everything that’s come before. We understand the industry isn’t operating on a blank slate, and while our approach challenges, it doesn’t disrupt. It’s empathetic to the industry’s low-risk appetite and it sympathetic to system estates –  integrating with existing solutions across the investment chain, to make sense of the technology investment made to date, rather than add to the complexity. 

Unlike incumbent providers, who come at the problem from a workflow or functionality-first perspective, we felt it was high time to flip the model and concentrate on making the data accurate, timely and trusted from the ground-up. This allows data to feed seamlessly and in real-time, into the investment capabilities built on top e.g. portfolio management, order management and accounting, instead of standalone data warehouses.  

Similarly, while rigid front to back systems mandate a data model on their clients, SaaS technology offers composability –meaning you no longer have to change your business model to fit the technology or translate your existing models into something your vendor demands. You can do business the way you want, in the language and format you choose.  

Taking an interoperable, API-first approach to investment data management tackles the lack of timeliness and trust, helping to reproduce data with complete accuracy and confidence, every time. But it’s important to understand APIs are not a complete strategy in themselves. We see a lot of firms getting hung up on having an API strategy but connectivity is only a starting point. Without the right control environment, entitlements protocol and domain knowledge to boot, unlocking the potential of your data across your teams and functions, will be difficult. 

From cost centre to value generation 

From our conversations in the market, it is encouraging to hear from firms that there is an urgent need to manage the data chaos and reach the nirvana state that is needed to survive today and thrive tomorrow. The resounding themes around multiple data models, the difficulty of achieving high-quality data, and how to gain value from complex data sets, resonate strongly with the mission we are on; to transition global financial services out of the past and make them future-fit.  

Piecing these conversations together, we see the following priorities forming the business agenda for the foreseeable future: 

  • Meeting investor and regulatory-led transparency, with greater granularity across public and private assets 
  • Demonstrating more value to investors through a digitalised client experience 
  • Achieving agility as a business, to respond to economic and geopolitical shocks 
  • Regaining control of operational efficiencies, to move from operating at cost to operating at profit again 
  • Liberating employees, leveraging available talent and skills to support success (amid the Great Resignation) 

Our view is that an interoperable Modern Financial Data Stack can flexibly achieve these priorities most efficiently and in the shortest time, enabling  firms to win back control, productivity and operating margins. It successfully moves firms from being cost-centred, to value generators, where they can deliver an enhanced and digitalised client experience and gain competitive edge.   

Importantly, while this approach meets the cost imperative, it also bears a valuable and critical human impact. It offers the means to liberate employees and win the trust of clients. You can put a price on cost savings, but trust…well that is priceless.