What opportunities can managers afford to miss?

Northern Trust's Ryan Burns asks whether asset managers are missing out on new opportunities when spending time and financial capital on capabilities that are not core to their value proposition?

US investment managers have been feeling the squeeze. Slimmer margins and rising costs drive the need for more efficiency in a market that is already challenging. Finding the right technology and making the most of resources is costly and takes time away from the core functions of investing and business development.

While this is not a new story, the trend appears to be accelerating as financial market volatility takes its toll on asset values. For many of us, the combination of margin pressure, regulatory change and client demands for transparency leads to a search for cost savings – and rightly so. But there’s another side of the ledger: the opportunities we may be missing when we spend time and financial capital on capabilities that are not core to our value proposition. These opportunities can include speed-to-market with new products, finding new investors for those products, and increasing revenue for the business. The question then becomes: are these opportunities we can afford to miss?

Acquiring the latest technology

Often firms have to step back and evaluate if they are using the best tools to effectively and efficiently accomplish their jobs. Having cutting edge technology with high functionality can greatly impact the ability to achieve the target operating model. But reviewing, implementing, and maintaining technology and ensuring systems are compliant take time and dollars that may have bigger impact elsewhere. The time it takes to research, review and eventually build or buy a plug-in technology is time away from leveraging a streamlined system to grow product and increase distribution. There are critical requirements, compliance deliberations, and hundreds of compromises behind implementations, including how the firm’s platforms will integrate or making sure there is a backup solution. Adding in time to train employees and problem-solving hiccups can mean days lost on implementation.

The talent balance

Finding and keeping talented trading resources can also present challenges for investment managers. Identifying available talent pools, comparing and selecting the best fit and continually investing in that talent have opportunity costs.  There are administrative and compliance roles that need to be filled. Some firms may need to rely on investment staff to handle trading as well.  If investment professionals are spending more time on trading, administration and compliance, they are spending less time making investment decisions.  

Many investment managers could ask whether trading is core to their investment process. For firms where alpha generation is a matter of asset allocation and security selection, not trading strategy, outsourcing can be an option. The decision to outsource trading is not only a time, money, and resource consideration, but for many managers it is a way to help future-proof their firms. Allowing teams to focus more on investment decisions and the opportunities they present, and less on trade operations, means being able to concentrate on what will bring the most value to the firm: finding the best stocks to support investors’ goals. 

If managers continue to rely on outdated technology and time worn processes, they lose the advantage of speed to market with new products and may miss out on finding new investors. Firms that lack the right mix of talent can risk a drop in client service and satisfaction levels, or even investment performance. But investment managers can use the economic squeeze as an opportunity to clarify their business strategy and find new avenues of growth through an intensive focus on the investment strategies, products and client service capabilities that distinguish them in the marketplace.

Ryan Burns is head of Global Fund Services, Americas at Northern Trust.