The middle office will remain fundamental to the effective operation of asset management businesses but it will also face fundamental challenges.
Bigger and bigger data
First and foremost the sheer weight of data passing through the middle office is likely to significantly increase. For example, consultants PwC have calculated that assets under management will rise from USD 63.9 trillion in 2014 to over USD 100 trillion by 2020. That is a pretty rapid increase given that 2020 is just four years away.
More powerful technology needed
With this in mind, the technology required by the middle office to handle the increase in data will have to become far more powerful than it is currently across most parts of the asset management industry.
Recent research by Citisoft reached the following stark conclusion: “Halfway through this decade, the demands on the middle office have exploded. Complex investment strategies continue to evolve, the demand for more timely data has stressed operations’ ability to ensure its accuracy, regulatory requirements have increased, and the industry is preparing for shorter settlement cycles. We believe the second half of the decade will transform the middle office in a way not seen since its inception.”
Increased competition across the industry, as well as downward pressure on fees, are forcing firms to continuously tighten their purse strings. Meanwhile, there are increased demands from internal and external clients for more reporting, more granular data and ever more analytics that slice and dice information in increasingly varied ways.
Gert Raeves, Research Director at CEB Tower Group explains it like this: “Middle offices are de facto being asked to share their data with a very wide range of departments: fund managers, quants and analysts in the front office, sales and marketing, accounting, risk and compliance... Pretty much the entire end-to-end life cycle to access portfolio data, performance data, and then carry out the analytics on that data.”
As a result, the middle office really is squeezed in the middle and will be forced to do more with less resource.
The good news is that help is it hand, but asset managers will need to embrace the change that this requires.
The right people, with the right processes, equipped with the right technology will succeed. “We’re heading into a world of extreme automation and technology that can scale to near limitless volume,” says Neil Smyth, StatPro’s Marketing and Technology Director.
“This type of future is perfect for the requirements of a modern middle office. Data management needs intelligent automation and workflow, and analytical operations need power and scale. The end distribution channels already exist, the internet made this possible years ago but only a handful of firms have pushed forward and benefited from flexible online self-service analysis and reporting.”
PwC summarise their view as follows: “Asset managers will consistently deliver more operationally efficient organisations.
“Technology will play a key role in cost efficiency by 2020, providing stronger investor management and CRM capabilities. With the increase in global access there will be pressure on technology systems to provide accurate and timely information, while meeting security and privacy needs.”
On this basis, because the middle office is the lynchpin in data management and analytics, it is set to become even more important and relevant for the future of asset management firms. Its future role will be fundamentally changed compared to the way it functions today.
But its ability to respond to the challenges it faces will be central to the prosperity and even to the survival of the asset management enterprise in an increasingly competitive marketplace.
- The middle office is growing in strategic importance within the asset management world
- Data management, volume, complexity and regulation are real challenges today
- The drive for cost efficiency isn’t dissipating
- It’s difficult to add value with existing processes and technology
- The future toolset needs to deliver automation, intelligent workflow and computing scale.