Buy-side firms moving forward with next generation technologies

Emerging new technologies are finally beginning to bear fruit for buy-side firms justifying their investments, according to Tadgh Young, head of global services for Ireland at State Street.

At some point, the technology that we take for granted today will be subject to the same questions: is it a fad; will it become essential, how does it simplify or will it disappear in a few years’ time?

Amazon for example, could not be the world’s biggest retail platform if the world’s biggest stores had been convinced that the appetite of consumers would move towards online platforms. Apple’s place in the mobile phone market could not have been carved out if Nokia and other major handset manufacturers had recognised how ubiquitous touchscreens would become.

But those industries’ biggest names did not use their advantages of scale and consumer awareness of their brands to cement themselves as the go-to providers of new services and products that people wanted, so usurpers were able to do so.

This reticence is understandable. Not all new technology turns out to be as successful as the internet or the touchscreen, as anyone with a long unused collection of mini discs will know.

Financial services firms have been exploring the potential uses of various ‘emerging technologies’ for some years now, but they have not yet taken significant steps towards implementing and embedding these new technologies into their business. For example we have yet to see broad adoption of data migration from mainframes to the cloud, or the use of distributed ledger technology to make that data simultaneously available to multiple accessors, in combinations or formats relevant to them. The same can be said for applications of artificial intelligence and robotics.

That exploration into artificial intelligence, distributed ledger technology, robotics and cloud was undertaken with a view to establishing the viability of these technologies. State Street’s new research, ’New Routes to Growth’, gives an interesting insight into what conclusions have been drawn.

Between 2017 and 2018, the proportion of executives surveyed at asset managers and asset owners who consider emerging technology (specifically cloud computing, distributed ledger, artificial intelligence and robotic process automation) to be a significant factor in helping their organisations achieve their strategic goals rose from 18% to 48% (from the least significant factor, to the most).

This 30% increase suggests that respondents have carried out their own individual exploration of the importance of emerging technologies, which has begun to bear fruit for asset managers and owners justifying investment into these new technologies acting as a driver for growth.

When asked where they saw applications for these technologies, the responses covered a wide range of functions: investment strategy, for example investment analytics; distribution, such as gathering client data; and internal operations, where cyber security was a popular response.

Respondents also indicated a ‘root and branch’ overhaul of existing systems might be in order to take advantage of technology-enabled efficiencies. However, the difficulty and cost of marrying them to legacy systems was often an impediment to this approach, creating a reluctance of the most senior management to make the necessary commitments.

Another interesting theme that emerged from the research was in the types of organisations respondents had entered into partnerships with in order to explore these new technologies. Established technology providers were common, as were universities and other research focused organisations.

However, core financial services firms, such as banks and investment organisations, were also popular. This perhaps suggests an issue that could divide the industry into companies that provide technology services, along with their traditional business lines, to peers who focus on their core investment business.

There is precedent for this type of split in fund distribution. Many asset managers have platforms that host third-party funds alongside their own, often offering administration services through ‘wrappers’ like pensions or ISAs.

The market for these emerging technologies is still nascent and, as such, it is still difficult to predict how the landscape for the provision of services associated with them will develop. But the growth of investment, and belief in them as solutions, means that these developments are likely to be significant.