Cloud-based technologies confer on asset managers a number of operational and strategic benefits at a time when their margins are being badly squeezed.
Investment firms are facing a number of acute challenges. Revenues have been difficult to come by due to the widespread market volatility and geopolitical instability. Simultaneously, post-crisis regulations have badly eroded returns, by imposing onerous reporting requirements on investment firms. For example, the US Securities and Exchange Commission (SEC) became the latest regulatory agency to introduce tough provisions for private funds - having enacted strict new Form PF disclosure rules. The industry is also spending more than ever on its operations, especially with the post-pandemic emergence of hybrid working.
Furthermore, many managers are looking to diversify revenue streams by launching new products and strategies, such as private capital. By doing so, firms will be able to tap into new investor markets and hedge themselves against macro headwinds such as inflationary risk.
As the industry becomes increasingly complex and subject to ever more expansive regulatory reporting requirements, CSPs (cloud service providers) provide firms with greater IT capacity and scalability. This is because managers do not need to spend huge sums of money on technology to store data, nor do they need to invest in people intensive IT departments. Moreover, this enables resources and personnel to be concentrated on client support and revenue generating activities instead of operational functions.
This can help managers grow their businesses in a way that is both cost effective and flexible.
Cloud also allows managers to benefit from data centralisation. Historically, the industry has been guilty of storing business information in silos across different systems and computers, making it incredibly difficult to access. Through deployment of the cloud, data can be centralised in a single location – in what can help facilitate greater efficiency.
The cloud also provides better security for managers. As cloud servers will back up customer information on a regular basis, they are an excellent tool for managers to lean on in the event of a business continuity event. By leveraging the cloud, data recovery is much faster thereby reducing some of the potential risks of downtime. Furthermore, CSPs have proven invaluable during the pandemic – allowing organisations to continue BAU (business as usual) amid the surge in remote working.
While CSPs can help unlock a number of opportunities at investment firms, oversight of these providers is absolutely essential. In a world where cyber-security and operational resilience are becoming increasingly potent issues – not least because of today’s highly charged geopolitical situation - investment firms need to ensure their CSPs adopt best in class risk management practices. This is something which CSPs are renowned for.
With asset managers facing more costs , operational synergies need to be identified. The business of fund management is also becoming more complicated as firms broaden their strategies and invest in new markets/asset classes. Leveraging the cloud can help firms net meaningful cost savings while simultaneously expanding their businesses. As such , it is likely that adoption rates of the cloud are only going in one direction.