[ I N D E P T H | I N V E S T M E N T O P E R A T I O N S ]
“ As we think about our evolving operating model , it is essential for the GCs to shift their outsourcing models as well . We are seeing the providers that are modernising are experiencing greater success .”
EVAN FIRE , CHIEF OPERATING OFFICER , PZENA INVESTMENT MANAGEMENT you operate and ensuring that you have a single data layer that can be leveraged more easily . “ Custodians have a strategy to be the intermediary of the data and the ecosystem orchestrator of the overall data flow .” These demands from asset managers have also driven the moves by custodians to integrate their services with front-office vendors , either through partnerships or acquisitions . The likes of BNP Paribas , BNY Mellon , Citi , HSBC and Northern Trust have opted for the open architecture approach , connecting to multiple front-office systems such as BlackRock ’ s Aladdin , Amundi ALTO , Bloomberg AIM and SimCorp . Meanwhile , State Street ’ s $ 2.6 billion acquisition of Charles River Development has seen them take the single platform approach , where the front-to-back data is all in one place . “ Third-party outsourcers have acknowledged that plugging in front-office data into the investment book of record ( IBOR ) is a pain point for asset managers , and so they have responded with these alliances to bridge that gap ,” says Tumilty . “ Because there are so few front-end operating models , it effectively means the service providers will have to build connectors into them . Technology and the utilisation of APIs should make it easier to do that - it would speed up the breakdown of the silos of the front- , middle- and back-office , removing the latency of data flows , making it more real-time and far less de-lineated .” Pzena ’ s Fire agrees and believes as custodians further develop solutions that are plug-and-play with asset managers ’ frontand back-office operations , the more they will look to outsource . “ The providers that are figuring it out are doing it both in a modular way , and by building a platform that , if managed properly , gives managers a way to simplify internal operations and leverage bestin-class technology ,” adds Fire . “ There has been momentum in the industry for third-party trading solutions , and custodians are trying to extend that model to the middle- and front-office to give them that whole-office suite .” That being said , the time-to-market of these front-to-back solutions to deliver real benefits for asset managers is still of some concern . Allianz ’ s Pushpahran believes these functionalities could be developed internally , as opposed to establishing multiple integration points with the custodians ’ own legacy systems , helping to further remove the barriers between the front and back-office . “ The time to market of these integrated front-to-back models from custodians has been slow because a lot of them are still dealing with the legacy system and data architecture they have in place , so how they can decouple from that is a challenge ,” explains Pushpahran . “ Whether they can build this within an incubator and migrate clients onto it could prove to be more successful strategy . The ideal model moves away from front- , middle- and back-office demarcation and goes to a whole-office model , helping address the overall data goals . “ Where it becomes powerful is if you can get the IBOR or other key insights from the downstream systems , and get it back in a timely way to feed upstream so that the data from where you execute a trade it able to come back and reflect within the portfolio manager ’ s decision support systems .”
New options for asset managers It is not only custodians that are helping to drive the transformation of investment operations . A growing number of FinTech firms specialising in automating highly manual and labour-intensive functions in the middle- and back-office are winning increased business from asset managers . In addition , some of the very largest asset managers are creating technology business lines focused on providing solutions to smaller-sized firms . Most recently , French investment giant Amundi launched a new cloud-based technology service aimed at expanding technological solutions available to smaller asset managers and institutional investors . The Amundi Technology business will offer three cloud-based solutions via Amundi ’ s portfolio management system ALTO , focused on providing front-toback technology solutions for asset management , private and retail banks , and retirement savings . “ We have seen that there is demand from the market for the evolution of
32 Global Custodian Spring 2021