Tech trends continue to evolve for the post-pandemic future
By Robin Pagnamenta – It’s been a year that many of us would probably prefer to forget, but for asset managers the pandemic has turbocharged many underlying technology trends that were already in place before anyone had ever heard of Covid-19. The migration of more and more activities onto the cloud has been underway for years, of course – propelled above all by the sheer volumes of data which asset managers now juggle daily in order to shape their investment decisions.
But those firms which had already shifted many of their activities into cloud-based solutions well before the pandemic hit last March found the transition to working with a dispersed workforce much easier – and faced less disruption compared to those heavily reliant on on-premise infrastructure and in-house teams of IT staff.
John Kain of AWS, the world’s biggest cloud provider, says the charge into the cloud by the industry has been led by those firms which rely on the most data intensive investment strategies – above all the quant funds – but he thinks there is still plenty of room for overall growth as smaller firms and those with different strategies contemplate the long-term future of their tech stack post-pandemic.
“I think we’re still relatively early in the overall migration of the asset management industry to the cloud,” says Kain. “There are obviously examples of firms that have completely made that move but I think it really depends on their investment processes.”
Either way, with more and more asset management activities now being conducted in the cloud, the sophistication of the tools being used by fund managers to make decisions and automate different processes – everything from accounting to compliance and providing a platform for investors – are also advancing rapidly.
Experts agree that a host of new technologies based on machine learning and artificial intelligence are now creeping further into the mainstream, as the cloud has helped to democratise access to formerly arcane pieces of bespoke technology available only to the very biggest and most deep-pocketed firms on the planet.
Angana Jacob of SigTech, a software firm which specialises in developing models for backtesting the investment strategies developed by big quant funds, says these advances mean portfolio managers are able to incorporate new types of data that were previously unavailable to them or too difficult and expensive to access.
“We are seeing the rise of an expanded toolkit of very sophisticated quant techniques coming up,” she says. “Data is needed to make sure your quant strategies are resilient.”
She gives the example of how real-time “exhaust data” – raw information chugged out by consumers for example when they use their credit cards or go shopping online – is increasingly being harnessed by asset managers to determine trends in the economy well before they are picked up by official statistics.
The availability of natural language processing – AI that can scrutinise company news and announcements to detect shifts in investor sentiment – are also being deployed by portfolio managers seeking to forge new trading methodologies.
Of course, another pressing concern for fund managers remains cybersecurity. It’s no secret that the pandemic triggered a huge surge in cyberattacks, linked to the sheer number of people working from home on insecure home wifi networks and devices.
Unprotected by the firewalls most companies use to defend their own office servers, this makes many corporate networks far more vulnerable to attack because of the exponential growth in the “attack surface” they can seek to penetrate.
“We now have a distributed network and we have increased the number of opportunities for cyberattack massively,” says Kate Horne of RFA, which offers a service which helps firms to detect and respond to attacks.
This shift in working habits, which most believe is here to stay, towards a new model of hybrid working means firms need to consider a new approach towards how to secure their systems and data from potential attack.
This theme of how to decentralise cybersecurity to cover all of the systems being used by individuals working across your network – not just those sitting within your office – is another critical trend which is likely to only grow in importance in the year ahead, Horne says.
It is also a trend which is shifting perceptions of cybersecurity across the industry. Historically, many firms were reluctant to move some of their critical data to the cloud because of security fears – but that is now changing, according to SigTech’s Angana Jacob.
“Cloud adoption is increasing and I think some of the mindset barriers have changed,” she says. “There’s an understanding now that cloud can be more secure than your infrastructure in house.”
There are external factors which are affecting the technology decisions taken by asset managers too. One significant change is looming large on the horizon over the coming months with an estimated 1200 asset managers due to be brought into new Uncleared Margin Rules (UMR), which will come into effect this September and in 2022.
By forcing asset managers to hold bigger margin requirements for non-centrally cleared derivatives, the new rules, which were first drawn up by international regulators in the wake of the 2008-9 financial crisis, will have big technology implications. The new regulatory burden to comply with UMR means firms will need to embed new reporting systems and software – or sign up a technology firm to take on many of the necessary tasks.
Shift to managed services
The explosion of cloud-based solutions is encouraging many firms to embrace more managed technology services provided by third parties.
Another consequence of the pandemic has been a growing demand from asset managers to keep their real estate footprint as light as possible.
With many companies rethinking their whole presence in traditional city centre offices, many are considering outsourcing new activities previously undertaken by in-house teams of middle and back office staff.
Many asset managers are asking their technology vendors to undertake new tasks – from administrative and reporting duties to trade reconciliation activities – leaving smaller ‘lean and mean’ teams to focus purely on the most critical areas of their business – portfolio management and investor relations.