More than a third of asset managers plan on increasing investments in commercial loans, alternatives, derivatives, equities and mutual funds over the next 12-month period, according to a survey by SS&C Technologies.
The 2016 Global Insurance Asset Management Technology Outlook survey, which was conducted in Q2 2016, polled 100 insurance and asset management executives in accounting, finance operations, investments, and technology from around the globe.
Participants were asked to respond to 28 questions on current challenges, concerns, and the future direction of their asset management operations.
"Our 2016 survey shows that large insurers and other asset management firms are expanding their portfolios to include a wider range of asset classes in an effort to increase yields in a low interest rate environment," says J Timothy Reilly (pictured), SS&C's senior vice president and general manager, institutional and investment management.
"However, processing new securities types was most frequently cited by survey respondents as a challenge to expansion, followed by compliance with related regulations and accounting standards. Our survey indicates that asset managers are responding to this challenge with plans to increase the use of both external managers and operational services partners, with 53 per cent of respondents reporting that deeper knowledge of specific asset classes most influence their decision to use external managers."
According to the survey, investment firms are migrating away from home grown technology solutions and those provided by third-party investment managers in favour of licensed software and outsourcing services from vendor partners – a continuing trend that was observed in SS&C's 2015 survey.
Twenty-five per cent of companies surveyed currently use an internally-developed system. The survey indicates that this will drop by 20 per cent by 2021, with a directional shift toward both outsourcing and purchase of vendor-provided solutions. Outsourcing is the favoured strategy of the two approaches, with a jump from 10 per cent usage today to a projected 35 per cent within three years.
"While many considerations come into play when insurers weigh the costs and benefits of choosing a software-centric vs outsourcing model for their investment-related systems, our survey reveals that staff skill levels, regulatory compliance capabilities, and access to technology are foremost," says Christopher Brown, SS&C's vice president of institutional technology services. "Across firms both big and small, the most important consideration for choosing an operational model was availability of skilled staff to meet needs. Development and retention of employee talent remains a challenge for insurance investment operations, which can make adoption of partially or fully outsourced functions compelling."
Growth in cloud adoption also continues to trend upward, with 56 per cent of respondents anticipating an increase in the use of cloud and hosting providers. The importance placed on cloud strategies continues to rise, as more firms become comfortable with the technology and the benefits that it can provide. Overall, 62 per cent of respondents said that cloud technology is critical or extremely critical to their strategy.
