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Investment Management Operations in the New Cloud-Native Era

FundGuard Team Insights from our Time on the 2023 Conference Scene


We have entered the last quarter of 2023, and it is peak event season for the financial services community. FundGuard’s team has a dozen events behind us so far this year, and another half dozen ahead before the year ends.


As we’ve travelled around the world and back to discuss and debate the opportunities and challenges of today, there has been an undeniable drumbeat during panel discussions, booth conversations and after dinner drinks: The asset management industry is at the tipping point of total transformation. This rhetoric has been consistent and crystal clear.


Transforming With Technology

“What was clear from the last two days is that we have reached the perfect storm for an operational evolution. From AI and digital assets to ESG and alternative investments, Asset Mangers’ commitments to their investors and the expectations of the regulators cannot be met without new technology.”

-Erika Alter, FundGuard Marketing Director, following the May 2023 ICI Leadership Summit


Regulators and investors have long been calling for increased transparency, accuracy, efficiency and cost effectiveness, but until now existing technology – particularly in the back office, has not been fit for purpose. In fact, while products and services have developed at a rapid pace over the last 20 years, existing legacy technology has remained inflexible, old fashioned and acted as a consistent and undeniable barrier to real change. So, if the market wants to meet the ever-growing demands of their stakeholders, it must make a leap to genuinely transformational technology that has the power to effect meaningful, widespread change.


Easily said, but no one is denying that the challenge is immense. What we’ve all learned is that this level of transformation cannot be achieved by simply continuing to bolt new technologies, no matter how dazzling and exciting they may be, to existing systems and processes. This is how it was done in the past, but the status quo just doesn’t work anymore.


The New Course of Action is Cloud-Native

“Technology is at the heart of business transformation and should be leveraged to help investment firms leapfrog their competitors. Those that aren’t innovating with cloud tech and negating legacy tech are going to be left behind.”
-Antony Slee, FundGuard EMEA Sales Director, summarizing key takeaways from the Fund Operator Summit in London last month.


The future state of the industry can be found in innovative cloud-native solutions. They are flexible, cost-effective and future-proofed. But knowing what’s needed, and making the change are two very different things. Without a doubt, the market may know the direction of travel, but many organizations are still grappling to understand how best to approach their journey to cloud-native operations, and how this differs from a cloud-enabled or any other approach. Getting this transformation right requires an entirely new lens through which to view investment operations and the way in which the infrastructure should be built and managed to meet the industry’s needs.


Part of viewing operations through this new lens is having clarity on the limitations that came with the old way of doing things.


Beware of Cloudwashing

A cloud-enabled solution, with is often pitched as a panacea to the problems inherent in legacy technology, and which we refer to as “cloudwashing,” is still based on, and often relies heavily on, legacy systems. It might store data in the cloud, for example, making it more accessible to stakeholders. But it’s still ingesting and integrating the data in the same way it always did, relying on the same old systems, processes and infrastructure. It can’t facilitate wholesale change or a new operating model.


A cloud-native solution avoids all of this because it doesn’t rely on legacy systems in any way. The cloud-native solution is created in the cloud from day one, driving an entirely new infrastructure with new workflows and processes. Continuous software delivery and a perpetual state of readiness can be assumed, improving not only operations but also accelerating firms’ time to market and time to revenue when launching new products and services.


The Path to Cloud-Native Starts from the Back  


“Everyone is dealing with legacy tech that has been customized to meet the moment year over year and has resulted in fragmented operations, siloed systems and data. There is a big prize for ‘getting it right,’ which means empowering the front office, providing clean data and moving towards a modern tech & operating model.”
-Greg Farrington, FundGuard North America Sales Director on the scene at the FT Future of Asset Management event in September.


Traditionally, operational processes have evolved by incorporating new solutions as needed to accommodate new asset classes, new jurisdictions, new regulations and so on. So, while many of the solutions that have emerged through the years to “meet the moment” have been quite sophisticated, particularly in the front office, they still ultimately sit on old tech, creating more and more operational siloes with specific data and unique processes required for each tacked-on system.


With separate systems operating from front to back, “getting it right” becomes a complex, often manual, time consuming and error-prone process. There’s also plenty of redundancy and increased costs that come with this legacy of multiple engines all doing the same thing but in different ways, at different times and for different teams.


Digitalizing and transforming technology starts by turning this spaghetti bowl approach on its head. If the key focus, as Greg heard, is to empower the front office and deliver what investors want – better investment performance, lower costs, reduced errors, enhanced transparency and the ability to add new products and services as needed – then what’s needed is a cloud-native infrastructure that starts in the back and works toward the front, and can adapt and evolve quickly with little effort.


The Practical Path to Digitalization

It’s easy to sit on a panel and talk about the cloud and digitalization as the solution to all that ails our industry, but getting to the practical application of these very new and innovative ideas can be tricker since we do not have previous roadmaps to follow.


Complete digital transformation will need to start with a shift in the assumptions we make about the requirements and processes for investment management workflows. To start, teams might ask:


  • Do we have continuous availability? Can we ensure that our data and tools and services are always available with no downtimes and zero-fault tolerances?
  • Is scalability built in so that we can adapt seamlessly to adjust for increased volume or speed needs, as user numbers or data processing volumes ebb and flow?
  • Is there inbuilt flexibility and future proofing? Can new asset classes, new regulatory requirements, new time frames be incorporated easily and seamlessly?
  • Is cost efficiency a priority? With less need for on-premises infrastructure, the cost savings should be felt all the way through the organization as both initial capital outlay and longer-term maintenance costs reduce.
  • How much of the infrastructure should be bespoke? Where can the foundation of the operations piggyback off collaborative, industry wide efforts, freeing up resources and creativity for activities that genuinely add value.


Cloud native technologies meet all these requirements alongside facilitating investment activities, regulatory and compliance needs and investor preferences because it’s not designed to do a single, specific function. Instead, it creates an environment that is adaptable, flexible and scalable.


What Now?

Accepting the need to abandon legacy technology is just the first step. It’s a huge step, with wide ranging implications. But for real, lasting change and transformation, the industry is also going to have to abandon legacy thinking. It’s impossible to move forward within structures that prioritize existing ways of doing things.


Yes, there will always be resistance to transformation. It’s not just a question of evolving systems. Change affects people, processes and technology, but the good news is that the trailblazers we’ve heard from on the conference circuit this year are broadly aligned on best practices for organizations to consider as they embark, even if somewhat reluctantly, on their own paths to transformation. To help other agents of change align their stakeholders and accelerate innovation, we’ve listed the top 5 most consistent pieces of advice we’ve heard at recent events.


  1. Executive sponsorship is a must: Campaign for key stakeholders to buy in with a transformation mindset.
  1. It’s imperative business and technology groups remain aligned throughout the transformation process. Both sides need to buy into the vision.
  1. Establish clear goals and measurable targets that are documented throughout the transformation: Approach must be agile, delivering value early and consistently throughout the project to ensure momentum and retention of stakeholder support and budget.
  1. Fix the basics: Legacy platforms are one of the biggest factors holding firms back. They were not designed for today’s environment, which requires unified data, distinct user experiences, scalability and IT security.
  1. Invest in training your talent: A lack of resources and/or a lack of skillset remain huge red flags for transformation programs.


Join the Transformation


FundGuard is transforming legacy operating models with a front to back, AI-powered, cloud native and multi-asset class investment accounting platform for asset managers, asset owners, custodian banks and fund administrators. Contact us to request a demo and learn more.


Related Reading: Defining the Operating Model of the Future: Takeaways from InvestOps US 2023.


Next stop InvestOps EU, ALFI London and TSAM. We’ll be back soon with more insights from the road.