Following our London Roundtable on ‘The Future of the Back Office’ in July with participants from some of the region’s leading asset management firms, FundGuard’s Antony Slee, Director of Sales, EMEA, and Chris Mills, Managing Director at Citisoft, sat down to discuss the key themes and insights captured during the discussion.
The focus of the roundtable discussion was the future of the back office. But what state is it currently in? And how did we get here?
Antony Slee (AS): As our roundtable participants know only too well from first-hand experience, there’s a whole host of legacy systems across the middle & back office, some of which are decades old, and they lack innovation and investment. They weren’t designed for modern data requirements, such as real-time access, analysis and complex reporting, or the range of asset classes we have now, and lack cloud-based capabilities, which limits data flow and scale.
Our industry tends to lag behind lots of other industries when it comes to digital innovation but I think we’re now at a crossroads. What were once buzzwords, such as machine learning, AI, Tokanization and digital assets, are indeed coming into play, but the industry has realized it’s not ready to take full advantage of them yet due to the restrictions caused by legacy systems.
Chris Mills (CM): Yes, and a few of these legacy systems that are 20-30 years old handle about 80% of the buy-side’s back office operations. They’re, and they’re struggling to cope with increasingly sophisticated and global client demands. They may have been endlessly upgraded and updated over time, but a chain is only as strong as its weakest link, and some capabilities can never be updated because of the technical limitations when they were designed..
Only a handful of global firms can handle all their technology requirements internally, and smaller or mid-sized firms often rely on third-party vendors and outsourcing for enhanced technology and operational needs. For example, recent market demands have forced firms to acquire or partner for investment capabilities in private markets, which means there is a balancing act between combining operating models and preserving existing expertise.
What are the challenges for integrating private and public markets?
AS: In a nutshell, centralized data is critical for integrating private and public markets, but operational silos and fragmented systems are still widespread. Many firms still operate each asset group with their own model, lacking a unified strategy for how to manage specialist teams across these silos. But centralizing data should not mean consolidating for the sake of it – the aim should be for flexible, tailored views, not a single rigid platform. In this context, it was significant that the discussion group didn’t want to see a convergence of operating models without the specialised expertise of private teams being respected. So integration is not solely a technology issue – it also requires operational changes, affecting people and processes, with no clear consensus on when data from both types of assets should merge in the operational or reporting lifecycle.
CM: Buyside firms’ key aim is to demonstrate investment excellence for their clients by managing portfolios that increasingly include both public and private assets. Firms strive to demonstrate investment excellence by managing portfolios that may span both public and private assets. A key challenge is achieving consistent and standardized reporting across these diverse asset classes, without compromising the specialized expertise required in each sector. Respecting this expertise is essential to ensuring confidence in the data and insights presented to clients. Those in the room were unanimous that meeting this demand will require a shift in operating models, with more sophisticated back-office capabilities to support standardization while preserving the integrity of sector-specific knowledge.
How important is back office access to real-time data?
CM: The need for real-time data is nuanced, as the more liquid public assets increasingly require it for pricing, while private assets, like real estate, are not revalued as frequently. But the industry is constantly moving towards this, and regulatory shifts, such as the transition to T+1 settlement in the US, are key drivers for infrastructure and technology changes.
AS: A lot of daily back-office processes still rely on batch processing, which inherently slows down data timeliness, making real-time or even intraday access unachievable on older platforms. Many firms, particularly smaller managers, rely on bespoke, spreadsheet-driven processes, and despite advanced technology, the source data for private assets is often manual and infrequent, making it difficult to achieve real-time reporting.
For public assets, real-time data is almost a prerequisite. Different stakeholders across the trade lifecycle require data with varying frequency. For example, the front office portfolio teams require the latest cash and positions data that has been enriched by the accounting engine throughout the day. Plus, you have to consider macro industry initiatives such as T+1 (and perhaps T+0 in the future) settlement and the continued momentum with digital assets, all of which will require data on a much more frequent basis.
Where are we on the multi-book vs single book debate?
AS: The proliferation of ‘BOR’ acronyms – e.g. IBOR, ABOR, DBOR, PBOR – is a byproduct of legacy systems and a legacy way of thinking, and the industry should focus on stakeholder needs rather than these acronyms. But despite industry chatter about convergence, multiple books of record remain the norm, and user needs vary widely by persona and use case, especially when we consider creative/reactive data views vs standardized reporting.
Many systems still oversimplify what it means to support multiple books of record, especially when private asset nuances are involved. For now, many managers are reverting to side-of-desk solutions to remain nimble. Full exposure visibility depends heavily on Third-Party Ledgers (TPLs), and the thresholds for needing them aren’t always clear. FundGuard’s technology leverages its current capabilities to generate multiple views from one set of transactions, reducing the need for multiple processes or reconciliations.
CM: Different stakeholders, such as accountants and fund managers, need distinct views of investment data, which requires technology that can surface relevant information to each user. If you don’t have that capability, then your ability to demonstrate your investment expertise is limited or even fundamentally flawed.
This was highlighted by one participant at the table, who talked about assessing exposure risk to Lehman back in 2008. In the aftermath of the bank’s default, it took some teams two weeks to assess counterparty exposure because systems weren’t aligned to show full risk and exposure. This demonstrates the dangers of consolidation without foresight, and the group also noted the risk of over-consolidation: centralized systems often come at the cost of responsiveness, forcing power users to maintain their own shadow processes.
What role does organizational culture play in transforming back office operations?
AS: The firm’s culture plays a crucial role in back office transformation. In fact technology only addresses about a third of the problem – true transformation involves people, processes, and a willingness to adapt to complete process changes. But as the group pointed out, cultural friction is real, especially as traders move to the buy-side and encounter more conservative data stewardship practices
CM: Technology is only part of the solution, and organizational culture can be a significant inhibitor. By way of analogy, cars can now drive themselves, but if people don’t want to let their hands off the wheel, then it doesn’t really matter how good the technology actually is. Certain technological and operating model demands, such as geographical spread, scalability, and real-time data, are now prerequisites for coping with the current investment universe.
How can the industry accelerate the pace of change and implementation?
AS: Our roundtable participants all agreed that the industry can’t afford transformation projects that take three to five years. Instead, it should focus on bite-sized, demonstrable steps that show tangible benefits early and often.
CM: Increasingly, with today’s firms, operating models and technology must be able to scale for geographical spread or to meet the demands of real time data. These are fundamental building blocks that have to be in place, so managers can differentiate in today’s investment market place. If you don’t have them, your systems are facing an end-of-scenario. You may be able to cobble it together and keep that poor horse dragging the cart, but at some stage you have to upgrade to a car.
Everyone’s talking about AI and automation. How is this impacting the industry?
CM: The roundtable conversation took a swing to talk about how AI, particularly generative AI, has primarily focused on individual productivity but it’s now evolving with agentic AI to address operating model improvements, which involves multiple stakeholders and outsourced capabilities.
But as we were reminded by participants at the event, we also need to be aware of the risks of relying on AI, such as hallucinations, missed context, or reinforcing existing data flaws. Business cases must show how AI improves margins or productivity without sacrificing control and accuracy.
AS: Yes, and it was interesting to hear that while demand for AI strategies is being driven from the top down, execution of these strategies remains patchy. Participants questioned if AI is going to create the same role displacement we saw in offshoring and, if so, where should the energy go? Into data ops? Or portfolio management? The room also debated whether firms should hire AI-savvy investment analysts to bridge this gap.
We view AI as a tool to enable staff to achieve more rather than replacing their jobs, and they should be encouraged to adapt rather than be motivated by fear. Use it where it delivers measurable value but always apply human oversight.
What are the industry trends to be aware of? And what’s the outlook for the back office?
CM: The UK and the EU intend to follow the US in transitioning to a T+1 settlement cycle, which will shorten it significantly. There was confidence amongst our roundtable participants that while the UK has the technology capabilities in place, the increased data flow will place greater considerable demands on the infrastructure. Firms will need to assess if they’re able to cope with that data flow in near real-time or on a T+0 basis. That’s the challenge for the whole industry.
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