Overcoming efficiency challenges was a common theme through the Global Custodian Forum in London this week, as buy-side operations teams and post-trade firms look to new outsourcing and technology models.
The start of the day focused on the current macro challenges facing asset managers and hedge funds, where buy-side participants explained the current motivations behind outsourcing both IT infrastructure and middle and back-office functions.
But one concern that was raised was the amount of legacy technology that is still currently in place, which is causing a significant hurdle in buy-side firms having efficient data management capabilities. Both buy-side firms and post-trade service providers still have a lot to do to overcome legacy platforms to ensure there is both consistency and accuracy in the data they need.
As well as data, fee and margin pressures on the buy-side have helped sparked the move to a front-to-back model offering from custodians. This has been evident in acquisitions and partnerships from the likes of State Street, Societe Generale and – on the fund services side – SS&C. With heightened demands for data for the front-office, asset managers are opting to partner with new service providers as opposed to reinvesting in technology. Challenges still remain when it comes to uptake though asset managers seem in favour of the offering.
Custodians feel they are in the right place to provide an end-to-end solution for asset managers not only challenged by operational efficiencies, but also to provide harmonised data services to help investment decisions of their clients.
The second half of the day explored far newer concepts for securities services providers, including environmental, social and governance (ESG) investing, new technology blockchain-based technology platforms and the tokenisation of assets.
Asset managers and asset owners are making a real push into the ESG space, with ESG principles becoming a significant factor when investing. Panelists explained custodians are also in a unique position to be a partner for ESG firms, especially on the analytics and reporting side. They can also provide ESG data alongside performance management data that custodians can provide. Some of the challenges raised were the correlation between ESG data providers as more and more enter the space and regulators taking a prescriptive approach as opposed to a principal-based one.
The panel on bringing blockchain to life explored how the technology can be used as a basecamp for market participants and other post-trade firms to then explore where else they can achieve value.
Yet panelists speakers debated whether blockchain fill force incremental or fundamental changes to business processes. There could be incremental changes as business decisions become increasingly influenced by technologists that are exploring the use of the technology internally on a micro scale. But it also can be fundamental as the industry becomes increasingly digitised.
For blockchain technology to achieve wider adoption today, it was established that it has to coexist, communicate and interoperate with today’s legacy platforms.
The final panel of the day discussed the rise of tokenised securities as a new asset class, not just cryptocurrencies but also new digitised forms of bonds, equities, loans and potentially real estate. However, for this asset class to take off with institutional investors, established providers of safekeeping are needed to link the old world with the new.
Yet a number of issues still need to be addressed, including the legal title of the asset and the cyber security of the asset, and many existing providers are waiting what regulation might be enforced before launching any new services for tokenised securities.
Panelists highlighted how each service provider going it alone will lead to slow progression and pointed out how an industry organisation such as SWIFT could implement standards and governance.