This document discusses emerging technology trends and how buy-side firms can leverage technology to address challenges from changing markets, increased regulations, and cost pressures. It highlights how technologies like analytics, big data, outsourcing, digital transformation, and robotics can help asset managers optimize operations, gain efficiencies, and create differentiated services. In the long run, disruptive technologies like blockchain may impact post-trade processes and potentially cause disintermediation for some service providers. Overall, buy-side firms need to carefully evaluate their technology strategies and operating models to remain competitive.

1. ROAD AHEAD: BUY-SIDE
Role of Technology
ABSTRACT
Buy-Side firms are in constant need of adaption to
the changing markets, Ever Increasing Regulations
and increased Cost Pressures. This article highlights
Emerging Technology Trends and potential for Asset
Management firms to address some of the challenges
through right Technology adaption
Adarsh Panda

2. 1 | B U Y - S I D E : R O L E O F T E C H N O L O G Y
INTRODUCTION
Capital Market Trends
Pressure on Investment Banks
Role of Buy-Side
ASSET MANAGEMENT TRENDS
Demographic changes
Regulatory Costs
TECHNOLOGY ADVANCEMENTS
Business Strategy
Analytics & Big Data
Outsourcing Considerations
Regulatory Upside
Digital Transformation
Dynamic Reporting
Robotics
CONCLUSIONS
Short/Medium Term View
Long Term Strategy
NOTES & REFERENCES

3. 2 | B U Y - S I D E : R O L E O F T E C H N O L O G Y
INTRODUCTION
Since the Global Financial Crisis(GFC) of 2008, Capital Market firms have
generally made a good come back as reflection of capital growth in
financial markets specially in equity/fund markets. However rising capital
requirements and regulatory costs continue to affect the performance of
investment banks and their ability to differentiate and compete in the
market.
On the other hand, Buy-Side firms have seen a steady increase in their
Global Assets Under Management(AUM), which by estimate is only going
to grow. With a reasonable positive assumption around their business
model and Fee structures, this only means Asset Management firms
would become bigger contributors towards overall Capital Market
revenue. Additionally, changes in investor demographic as well as easy
availability of market data has potential to push Buy-Side firms to re-
innovate their business model including Direct Market Access which might
drive capacity out of sale side.
Advancement of technology has
made data availability much
easier for Non-Banking entities
Popularity of ETF (Exchange
Traded Funds) means easy
exposure based trading
Better market connectivity is
impacting Capital Raising &
Market making businesses

4. 3 | B U Y - S I D E : R O L E O F T E C H N O L O G Y
ASSET MANAGEMENT TRENDS
Having established the important role of Asset Management industry, a
closer look at their business model reveals increasing stress in their
margin structure. Additionally, though global AUM have seen an increase
(and will continue to rise), there have been decline in the high rate of
increase in AUM that the industry had enjoyed prior to 2015. These two
points re-emphasise the increased competition for net AUM flow
(discounting organic growth) as well being able to create a scalable
operating model in a cost effective way. We look at these in details.
The investor Demographic
and new AUM topics both
require joint consideration.
Asset Managers need to
adapt and future proof if
they want to stay
competitive and relevant
which means preparing
now for future Generation
investors(Y,Z).
DEMOGRAPHICS
CHANGE
As wealth passes from baby Boomers to Gen X,Y,Z, the importance of
Wealth Accumulation gets as critical as Wealth Preservation. As newer
Generations are more tech savvy they demand higher customized
services, which throws an awkward challenge to Asset Managers -
Customization while being Competitive. Additionally, their risk appetites
being quite different to baby Boomers, the demand for Alternate Assets
might be one of the options the Asset Managers would have to consider
as means of generating Alpha.

5. 4 | B U Y - S I D E : R O L E O F T E C H N O L O G Y
REGULATIONS
While analysing Customization Vs Cost equation, the ever-increasing
regulatory burden requires careful consideration. In Europe and North
America, significant exercise is being carried out for compliance with
regulations around clearing of Over the Counter(OTC) based contracts.
Large number of standard OTC contracts now need to be cleared through
Central Counter parties while its accepted that some will continue to be
bi-lateral. Asset Managers having larger exposure to OTC based
instruments need to put the right technology strategy with a view to
support changes in Collateral
Management and Mark to Market
requirements.
In Europe, Asset Managers would need to
create additional reporting in support of
transparency requirements of MIFID II by
early 2018. While all these adds further
costs to the already stressed operating
model, there is probably no better time to
create the right Enterprise Data
Model(EDM) solutions than NOW.
The growing regulatory focus on all sides of
Capital Market, opens another important thread
not to go unnoticed. The past few years have
seen a steady growth of AUM under Retail
segment. As impressed earlier, due to shift in
Generations, the industry has seen pension
withdrawals and significant in-sourcing of
management function by Insurance & pension
providers. While regulations will try to keep pace
with Retail Investor safeguarding, this also
presents a great market for Asset Managers
considering Global wealth continues to rise. The
Managers with strong Retail connections, will obviously have the head
start advantage. However, consolidation on Buy-Side is likely as economy
of scale will play a crucial role in being able to offer the range of services
needed in retail segment while still being competitive in price.

6. 5 | B U Y - S I D E : R O L E O F T E C H N O L O G Y
TECHNOLOGY ADVANCEMENTS
As we have established earlier,
sole reliance on Market Driven
AUM growth is a risky proposition.
Differentiation by virtue of services
offered and value generation will
be key for Asset Managers to not
only secure their market pie, but
also gain additional shares as the
industry moves towards disruptive
technologies. Significant progress
of technologies around Analytics
and Big-Data provide great
options for Asset Management
firms to invest ahead of curve with a view to create differentiation when it
comes to attracting new markets.
As Asset Management Companies embark on technology transformation
journey, its critical to define the business strategy and create technology
roadmap as only an enabler to the same. For example, Business leaders
need to decide if they want to specialise in Alpha or be a Beta Provider.
In either case, having a deep
customer understanding is going to
be key for success. Advances in
technology means availability of
information, which also provides
opportunity for Technology &
Platform Providers to gain a piece of
Pie. Considering most of Asset
Management companies have
valuable historical and current data
about customers, strategic alliances with technology providers to create
the analytics, is an option not to be overlooked. This also comes with cost
reduction possibility by exploring Infrastructure outsourcing through
hosting options in Private or Public cloud.

7. 6 | B U Y - S I D E : R O L E O F T E C H N O L O G Y
OUTSOURCING
Retail strategy for most firms will
likely be around creating array of
customised services at
competitive costs. The Asset
Management industry might see
scale consolidation to drive costs
down, generating integration
opportunities for technology
providers at the same time
reducing potential players.
Similarly, investment service
providers will need to scale up
their technology platforms as
more and more Asset Managers
look to outsource their middle and back office as part of consolidation. The
number of players who would survive this exercise is hard to predict,
however Asset Managers would look at consolidating their operations
functions into as less
number of providers
as possible.
While, Retail segment
has started to play a
bigger role due to the
factors mentioned, it’s
also critical for Asset
Managers to retain
their institutional
business. Managers
solely focusing on
institutional side,
would need to ensure
their operating model
is efficient to survive the margin pressure and increasing regulatory costs.
Outsourcing options will become more relevant than ever before and
Managers might need to look at service providers who would be able to
provide cost efficiencies by virtue of their scale of operations.

8. 7 | B U Y - S I D E : R O L E O F T E C H N O L O G Y
REGULATORY
UPSIDE
While we spoke about increased
burden of regulations, this also
provides opportunities for firms to
consolidate and optimize their
business mode.
UCITS IV allows Asset Managers
to distribute funds across EU by
being domiciled in a country of
choice.
As a fall-out of the above topic,
the demand of market utilities is
something to be considered as outsourcing market matures and labour
arbitrage reduces in value. Blockchain technology has potential to provide
significant efficiencies through post trade DLT(Distributed Ledger
Technology), however the speed of progress seems to be slow as the eco-
system is looking to move carefully on this.
KYC, Trade Matching &
Reconciliation, Settlement &
Clearing are few areas heavily
being targeted for Block Chain
models with increasing number
of pilots aimed at them. Its highly
likely however that, Block Chain
would draw more attention from
Investment Operations and
Shareholder Admin service
providers than Asset Managers themselves. This would be more prevalent
as Asset Managers look to focus on revenue generating activities e.g.
portfolio management while looking commoditize others.

9. 8 | B U Y - S I D E : R O L E O F T E C H N O L O G Y
DIGITAL
TRANSFORMATION
We discussed about how
critical will it be for Asset
Managers to be able to
provide customised services
while being cost competitive.
Asset Managers who integrate
Digital Transformation as key
part of their Technology
Strategy would certainly be
able to create that deep and
better client experience which we analysed earlier. This way, the cost of
transformation can be built into a stronger ROI model which provides
penetration into new markets and additional opportunities in existing areas
of business. Front office is the area which provides significant potential for
creating more digital processes which has direct impact on client
satisfaction.
As briefly discussed earlier, intelligent Analytics could play a big role as
this would allow trading decisions to be made based on current and more
accurate data. Depending on Business strategy, Asset Managers need to
embark on the journey of right technology choices. ‘Multi Asset Class’
solutions would require the right technology orchestration to provide single
view across multiple Order Management Systems.
Choice of Analytics strategy also needs to consider how comprehensive
data can be made available to the Analytics engine. Most of Asset
Management firms are already investing in creating ‘Investment Book of
Records(IBOR)’ which aims to provide a near real time view of Trading
and Accounting books. Due to the widely different operating models
adapted by Asset Managers, there is no ‘One Size Fits All’. However, the
objective is to provide near real time copy of investment records for best
possible investment decisions. The right Technology strategy will be
based on which areas the firm decides to keep in-house.

10. 9 | B U Y - S I D E : R O L E O F T E C H N O L O G Y
DYNAMIC REPORTING
The other area which is of significant
digital consideration, is client and
compliance reporting. This links tightly
with the Enterprise Data model
adapted by the firm. However, creating
or adapting a technology platform
which provides flexibility of Dynamic
Reporting will be key to create a great
digital customer experience. The more market moves towards tech savvy
generation, the demand for self-service reporting is going to increase.
Hence using the right technology platform is key, which not only generates
positive customer experience but will also help cost reduction through
legacy reporting platform decommissioning. Blockchain based Distributed
Ledgers have gained significant interest for this purpose as there are
potential for various counterparties to access the Ledger through their
‘Nodes’ and generate the reports in customised format through ‘Smart
Contracts’.
ROBOTICS
Buy-Side firms who decides
to keep operations in-house
or service providers having
fragmented applications
footprint, are aggressively
looking at Robotics Process
Automation(RPA) which
aims to replace software
robots for activities typically done by operators or help desk staff. While
RPA by itself won’t fix the operating model, however it provides quicker
automation solution which helps free up FTE capacity. Few firms have
already adapted RPA and are looking to move to the next level of Self-
healing systems, which anticipates an issue and proactively suggests a
fix. The applicability of various suggested options, will be a decision firms
need to take based on Business driver and Technology Strategy.

11. 10 | B U Y - S I D E : R O L E O F T E C H N O L O G Y
CONCLUSIONS
Buy-Side as an industry is going through multiple challenges due the
Macroeconomic and Socioeconomic factors. The current operating
models adapted by Asset Managers are more likely to be undergoing
changes based on the business model individual firms decide to stick to.
The Technology Strategy needs to evolve as an enabler to support the
Business Model. The actual adaption and selection of technology
platforms would depend on the Technology Strategy adapted and
investment appetite at a firm level.
In medium to long term, there is value in evaluation of ‘Disruptive
Technologies’ like Block Chain and the industry is already seeing
significant investments in these areas. The relevance of Technology
service providers will be on a rise considering the industry would look
beyond labour arbitrage in the process of identifying suitable business
cases for Blockchain technology. The speed of progress has been slow
so far, however there are areas in post trade processes, which firms are
convinced as targets for disruption. The scale of impact of these on Asset
Managers would be a factor of their future operating model, however
Service Providers would need far more serious attention as disruption
would potentially mean degree of dis-intermediation – which would be
threat and opportunities both. During this period of due-diligence, the
utility based model would continue to be evolved, however Technology
firms and Service providers may consider creating an architecture, which
would reduce the software waste if/when they decide to move to Block
Chain in future.
In short to medium term, re-evaluation of Enterprise Data Model would be
a smart thing to do considering cost pressure on Buy-Side is ever
increasing due to competition for new AUM as well regulatory overheads.
Here Asset Management firms need to carefully decide functions to
outsource (or move to Utility or Blockchain) vs functions to keep in-house.
In either case, functions around Middle and Back office would fall prey to
Robotics Process Automation which would be able to provide quicker
FTE/Cost reduction while firms decide their Target operating Model. Not
to forget, Digital Strategy is to be kept in mind while deciding on any
automation and transformation approach and few firms would be ahead
of others based on speed of progress.

12. 11 | B U Y - S I D E : R O L E O F T E C H N O L O G Y
NOTES & REFERENCES
The Value Migration (May 2016) – Boston Consulting Group
The Upside of more regulation:
A billion-euro opportunity - Mckinsey&Company
The future of asset management (April 2016) – ROBECO
EFAMA Quarterly Statistical Release N°68 (Fourth quarter of 2016)
ABOUT THE AUTHOR
Adarsh Panda is a principal consultant at Syntel Europe Ltd (till April/17),
specialising in technology consulting for Buy Side firms in Capital Market.
He has worked in number of Technology consulting firms over last 17
years. If you would like to discuss any issues analysed in this article,
please contact at (Adarsh_Panda@yahoo.com),