The greatest challenges facing fund managers are the accumulating operational burden of escalating costs, stringent regulatory requirements and complex data management, according to Broadridge.
Managing these operational variables, especially the complexity of assets that sophisticated funds typically hold within their portfolios, means technology budgets are expected to increase.
A recent KPMG study found that 39 per cent of funds expect to spend over USD1 million per year in the next five years on technology, up from the 35 per cent of funds that did so in the past five years. These technology expenses are so high that the study said one quarter of a large hedge fund’s management fee is dedicated to covering these expenses before charging back to customers and paying for the management team.
As the buy-side operating model evolves to cope, Broadridge believes it can help asset managers adapt. With increasingly complex systems, fund managers face cost pressures that can require the mutualisation, or cost sharing of infrastructure, accompanied by the consolidation of platforms.
Funds managing multiple service providers can lead to excess staff – 60 per cent of staff in large funds are within operations, technology, and data management, which do not directly contribute to asset growth. While outsourcing specialised services may work for some firms, it can also lead to increased operational risk from assigning services to outside providers without the level of oversight and system integration that would be a part of the propriety infrastructure of a firm.
While there is an industry trend of using external specialised managers to run multiple funds, assets and service levels, Broadbridge believes an alternative approach is available.
The company’s integrated platform is designed to provide a modular suite of investment management solutions that allow managers to consolidate and streamline their operational infrastructures from a single console. It also allows managers to combine portfolio, order, risk and reference data management and data warehousing under a single relationship, and provide investment management solutions that address the real-time, front to back-office needs of hedge funds, asset managers, fund administrators and prime brokers.
“There is an ever-increasing need for fund managers to support virtually any asset class, the changing regulatory landscape, and reference data providence and reporting,” says Brian Crowley (pictured), head of product management for investment management solutions at Broadridge. “Systems generally do not anticipate the need to provide such a high degree of flexibility.”