IT platform and spending trends in
the investment management
industry
Daniel Mayo,
Chief Analyst, Financial Services Technology
[email protected]
11th June 2014
1
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Agenda
2

IT spending overview

The business context

Spending trends and investment priorities

Implications for IT market
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IT spending in the investment management sector has
stabilized following the financial crisis
11,000
3.0%
10,500
2.0%
10,000
1.0%
9,500
0.0%
9,000
-1.0%
8,500
-2.0%
8,000
-3.0%
2008
3
Year-on-Year growth rate
Total instutional asset management IT spend $m
Global institutional asset management total IT spend, 2008-2013
2009
2010
2011
2012
2013
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Global spend growth has been driven by Asia Pacific,
but North America and Europe remain main markets
Total institutional asset management IT spend by region
Middle East
and Africa
7%
South and
Central
America
2%
North America
39%
Asia and
Pacific
23%
Asia and
Pacific
22%
Europe
30%
North America
39%
Europe
27%
2008
4
Middle East
and Africa
8%
South and
Central
America
3%
2013
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Back office is main IT spend area; focus on market
connectivity has been driving front-office investment
Order management
compliance
measurement &
Portfolio
attribution
management &
decision support
Risk
& post-trade
compliance
Fund
administration
management
Market data
Client reporting
& research
Front office
0%
5
10%
20%
Middle office
30%
40%
50%
Front-Office
Middle-Office
Back office
60%
70%
Back-Office
80%
Other
Intermediary integration;
Performance
CRM; Call Center etc.
& pre-trade
Fund accounting
Distribution
layer
90%
100%
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Agenda
6

IT spending overview

The business context

Implications for IT platforms

Implications for IT market
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Buy-side is dealing regulation, a low-yield market,
pricing pressures and intensifying client demands
7
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The nature of regulation has shifted driving more
pervasive reporting, controls and responsibilities
8

Focus on buy-side for AML,
KYC and FATCA

Solvency and Dodd-Frank
impacting asset managers and
owners (e.g. pension funds)

More stringent requirements
around client marketing and
performance reporting

Direct intervention on pricing

Desire for more
open/competitive market (EU)
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The traditional active asset management sector is
being squeezed in pricing and pressure for return
9

AuM growth driven by market
rather than new inflows

Market concentration increasing

Asset owners diversifying
assets classes and take more
direct control to seek returns in
low-yield environment

Shift from traditional active
funds caught between passive
and alternative/specialist
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Search for alpha is impacting front, middle and backoffice, with implications for risk, processing and
accounting
Strategies for driving alpha generation
10
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Pricing pressure and weak AuM growth means need
for efficiency (and benefitting from scale) crucial
11

Operating margins have
improved in main since crisis

But industry still below precrisis net revenue levels

Result of shift to passive/fixedincome

Many firms have not achieved
economies of scale
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A failure to consolidate systems has meant that size
does not correlate closely with IT expenditure
Institution assets under management size versus IT intensity
Total IT / assets under management
0.10%
0.08%
0.06%
0.04%
0.02%
0.00%
Assets under management
12
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Institutional and retail client demands for greater
access, transparency and reporting
13

Client / customer experience
expectations higher

Shift in frequency of reporting
and ability to access on
demand

Change in distribution structure

Technology trends are
changing marketing approach
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Despite challenges, institutions are shifting to growth
mode driving need for platform innovation
Top business challenges for the buy-side sector in 2014
14
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Agenda
15

IT spending overview

The business context

Spending trends and investment priorities

Implications for IT market
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On the IT side, risk, security and compliance remain
top issues, but shift to support business effectiveness
Top global buy-side IT trends
16
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This is translating into a more positive outlook for IT
spending, although with notable swing in Europe
Buy-side IT spending plans 2012 to 2014
17
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IT spending growth will improve, albeit with careful
moderation; with investment driven from tackling ‘run’
Global institutional asset management total IT spend, 2008-2018
14,000
6.0%
13,000
4.0%
12,000
3.0%
2.0%
11,000
1.0%
10,000
Year-on-Year growth rate
Total instutional asset management IT spend $m
5.0%
0.0%
-1.0%
9,000
-2.0%
8,000
-3.0%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
18
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IT spend growth will be driven by risk, compliance,
client servicing, and IT infrastructure investment
Buy-side IT spending plans by technology area function for 2014
19
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Risk and compliance spend is driven by a broad range
of requirements, not a single (or one-off) area
Buy-side IT spending plans on risk & compliance
20
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Front-office is moving out of major investment cycle,
with market data, OMS and connectivity remaining hot
Buy-side front-office IT spending plans
21
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Investment in back-office is focused on increasing
automation, improved reporting and use of analytics
Buy-side IT spending plans on back-office operation functions
22
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Agenda
23

IT spending overview

The business context

Spending trends and investment priorities

Implications for IT market
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Use of BPO in asset management has accelerated
since the financial crisis
24

Need for scale/ inability to
achieve scale

Additional reporting/
compliance burden

Shift to opex model

Access to new technology

However, cost tends to be
primary driver
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Insourcing provides greater control, flexibility and
agility, which is becoming more important
25

Nimbleness is more important
in current market

Need to shift towards
investment solutions/ specialist
assets

Regulation is shifting from
reporting to true compliance

Information/ analytics/
innovation can be restricted

Quality of service & control is
critical in client-driven market
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Shift to buy or outsource over build will continue, with
SaaS becoming more significant in small/ mid-tier
Institutional asset management IT spending by technology type, 2012 - 2018
140
Software
Services
135
Index of IT spending, 2012 = 100
Outsourcing
130
Hardware
125
120
Internal
115
110
105
100
2012
26
2013
2014
2015
2016
2017
2018
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Future outlook is slowly, but surely improving, allowing
firms to take more transformative approaches

Industry conditions will remain tough

But need to shift to revenue & differentiation strategies

Client servicing and distribution key to support revenue growth

Risk & compliance remain on-going issues

Technology investment driven by:
 Cross-asset processing
 Increased importance of analytics
 Closer integration front and back office & risk and accounting
 Need to obtain long-term efficiency gains
27
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