MANAGING

ASSETS ACROSS
THE GLOBE:
RETHINKING
THE OPERATING
MODEL
As margin pressures grow
across the investment
industry, investment
managers around the world
are rethinking their operating
models to support growth,
adapt to change and position
themselves for the future.
Leveraging today ’s innovative
technology and scalable
solutions can significantly
reduce costs and enhance
operational efficiencies
– helping firms remain
competitive in the drive for
Operational AlphaTM.
MANAGING ASSETS ACROSS THE GLOBE: RETHINKING THE OPERATING MODEL

MANAGING ASSETS ACROSS

THE GLOBE: RETHINKING THE
OPERATING MODEL
EXECUTIVE SUMMARY
Five considerations for supporting growth, adapting to change and positioning
investment operations for the future.

1 Using technology to gain a competitive edge

Technological innovation is playing a significant role in the asset management
industry – and in separating the ‘winners’ from the ‘losers’. Successful firms are
increasingly adopting an agile mind-set as they implement and use technology.
As they fine tune their strategies, many are splitting technology into ‘core’ and ‘non-
core’ functions – adopting distinctive approaches to each in order to help maximise
operational efficiency.

2 Creating holistic compliance functions

As the landscape grows progressively more complex and global – and principles-led
regulation comes increasingly to the fore – asset managers remain concerned about
meeting their obligations.
Successful asset managers are embracing regulation collectively as an organisation
and avoiding the development of large, ‘siloed’ compliance functions. They are staying
ahead of regulatory change by drawing on technology-led solutions, including
‘RegTech’.

3 Building an ecosystem of outsourcing partners

As businesses grow, asset managers often outsource non-core functions to attain greater
scale, flexibility and speed to market. As they build their outsourcing ecosystems, they
may run the risk of creating ‘shadow operations’ – pockets of resource dedicated to
duplicating or checking the work of other departments or outsourced partners.
Ways in which managers can mitigate this include avoiding ‘vendor ‘lock-in’ and
anticipating whether they will ‘build or buy’ technology at early points in their growth
strategy. Managers should be ‘technology agnostic’ and have the flexibility to change
their suppliers or approach as required.

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4 The front office is ripe for change

As managers seek to maximise efficiencies and reduce costs
in today’s environment of extreme margin pressure, they
are increasingly outsourcing front office functions such as
trading to third-party providers.
Many successful investment managers have shifted their
thinking from considering ‘front’, ‘middle’ and ‘back’ office
functions in isolation – to evaluating instead whether
they are ‘alpha’ or ‘non-alpha’-generating activities. These
managers only retain functions in-house that are considered
critical to alpha-generation.

5 Incorporating fund distribution into your operating model

Market competition means a growing number of fund
managers are looking outside their home market to raise
assets – but uncontrolled expansion can prove expensive
and a drain on resource.
Firms must weigh up cost/benefit calculations of market
entry, and develop a strategy to reduce the risks of rapidly-
escalating costs. They should ensure their technology
architecture and product can meet the needs of their
underlying global investors – and incorporate these
considerations into their operating model.

83%
OF ASSET MANAGERS PREDICT
60%
OF ASSET MANAGERS CITE
49%
NAMED TECHNOLOGY
A FUNDAMENTAL CHANGE IN REGULATION AS A DRIVING INNOVATION AS THE SECOND
THEIR OPERATING MODEL IN FACTOR TO OPERATING BIGGEST DRIVING FACTOR TO
THE NEXT 12-24 MONTHS. V MODEL CHANGE. V BACK OFFICE CHANGE. V

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MANAGING ASSETS ACROSS THE GLOBE: RETHINKING THE OPERATING MODEL

The investment management industry remains under pressure. Costs are escalating Operational AlphaTM is the
for many, fees are stretched for some, and margins are being compressed at a value an organisation gains
time when the industry is facing increasingly complex regulatory and compliance by improving operational
challenges, as well as growing technology demands. processes to increase efficiency,
maximise technology and
Many investment houses will find it increasingly difficult to drive performance
reduce costs.
and achieve investment alpha. Though asset management companies enjoyed
an average compound annual growth rate (CAGR) of 7% for assets under
management between 2012 and 2018, their profits per asset decreased by 2%
CAGR, according to estimates from Bain & Company – and the consultancy has
predicted a sharp decline going forward.i

Similarly, Morgan Stanley and Oliver Wyman reported that asset management costs
rose 8% globally in 2017, which was 5% higher than the annualised growth rate for
+8%
RISE IN ASSET MANAGEMENT
the preceding five years, limiting margin improvement in what was a record year COSTS IN 2017
for asset growth.ii The numbers continue to be stark, with little progress on cost
reductions made in 2018. In their latest report, Morgan Stanley and Oliver Wyman

+4%
state costs rose a further 4% in 2018.iii

If that were not enough, assuming markets were to fall, and the recovery were slow,
the Boston Consulting Group believes margins could drop to between 25% and
28% by 2023 – taking nearly a third off the current margin profile for the industry.iv RISE IN ASSET MANAGEMENT
COSTS IN 2018
It is no surprise then that to drive performance in this challenging investment
landscape, asset managers and asset owners managing money across the
globe are increasingly exploring scalable solutions to help them reduce costs
and build efficiencies.

The Operating Model - a Roadmap to Delivering Value

Asset managers that want to future-proof their firms are repositioning themselves
by re-evaluating and optimising their operating models. Many seek to take
advantage of new opportunities, innovative thinking, and new methodologies
in the search for Operational AlphaTM – the value an organisation gains by
improving operational processes to increase efficiency, maximise technology
and reduce costs.

There is no ‘one size fits all’ operating model in asset management. But
broadly speaking, an operating model comprises the people, processes, and
technology that define a company’s business approach and vision for the
future. Operating models provide the roadmap to delivering value. They
address how resources should be allocated, how client and other key business
relationships are developed and serviced and how critical functions, such as
the back, middle, and front office, are supported.

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To achieve Operational AlphaTM, it is now more important than ever for investment
firms to be agile, competitive, and efficient. Scalable solutions can help firms
reduce costs, eliminate redundancies and shorten time to market. The results can
include higher-quality data flows, improved governance and transparency, better
assessment of costs, re-evaluation of priorities, and enhanced client relationships.

Where does a firm begin when rethinking the traditional way of doing things?
This paper highlights five key opportunities that will allow asset managers to
make great strides toward future-proofing their operations. These include:

• Focusing on technological innovation;

• Thinking about regulation and compliance;
• Building a ‘best-of-breed’ ecosystem of outsourcing partners;
• Rethinking the front office; and
• Ensuring that your operating model meets the demands of distribution strategy.

1. USING TECHNOLOGY TO GAIN A COMPETITIVE EDGE

15-20%
For many investment managers, today’s operating models are
increasingly complicated networks with technology at their core.

The financial services industry – and asset management more specifically –

is adapting to the increasing importance of technology. For example, the use OF INDUSTRY COST BASE IS
ATTRIBUTED TO TECHNOLOGY SPEND.
of artificial intelligence (AI) holds the promise of helping firms identify complex
patterns and trends, potentially improving investment strategies. Automation
can help drive accuracy and speed across many functions - including valuations,
trading and reporting - while reducing execution costs.

PwC believes that as technology (in the form of automated advice and client
service) becomes prevalent, the industry will consolidate in certain developed
62%
OF ASSET MANAGEMENT SURVEY
markets, with up to 20% of the firms currently in existence either being acquired RESPONDENTS CITE “REPLACING
or eliminated.vi MANUAL PROCESSES WITH
AUTOMATED TECHNOLOGY” AS AN
Asset managers have to stay ahead of the curve in order to remain competitive IMPORTANT GOAL FOR OPERATIONS.
and technological innovation is playing an increasingly decisive role in separating
the ‘winners’ from the ‘losers’. Successful firms continuously evaluate the role of
technology in their operating models and create integrated, holistic solutions across
their platforms. Technology is already estimated to be 15%-20% of the industry cost
base,vii and, as Morgan Stanley and Oliver Wyman point out, leading players are
outspending their mid-tier rivals on innovation by a ratio of as much as 3:1.viii

This is evident in today’s market, with a majority of respondents (62%) to

Confluence’s Asset Management Trend Survey Report Q4 2017 citing ‘replacing
manual processes with automated technology’ as an important goal for back
office operations over the following 12 to 24 months. Achieving data accuracy/
consistency was the top back office challenge, while 82% felt that centralising data
was extremely important.ix

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One particular concern for many firms is technology drag. Technology depreciates
both financially and in terms of performance, and traditional investment cycles in Managers that have resource
technology last around five years. However, with industry-wide moves to heighten constraints may choose to
digital capabilities and draw on agile development techniques, innovation is outsource certain functions
occurring much faster than this.
to a third-party provider who
The most successful investment firms are not just moving to agile solutions; they are already has the technology
adopting an agile mind-set. This includes placing cross-functional teams around built into their solutions and the
products and services, and empowering those teams to achieve results. ability to invest in technological
Successful asset managers are also hiring technology talent to drive a new and innovation.
creative vision and culture in their organisations. They are identifying disruptive
technologies, and re-designing long-standing processes. They are embracing
machine learning to perform repetitive tasks faster and with greater accuracy.
Many are using public and private cloud capabilities to gain efficiencies and scale
in powering their businesses. They are also drawing on predictive analysis to
deliver data-driven insights to support their decision-making.

Key Technology Considerations

Investment firms wanting to rethink their approach to technology, particularly

in the context of refining their operating model, must take several key factors
into consideration. The first is whether it makes more sense to build or buy new
infrastructure. Asset managers must be mindful about potential future limitations
when making their selections. Will the firm have the flexibility to move across
platforms and providers in the future?

SPLITTING TECHNOLOGY
INTO ‘CORE’ AND ‘NON-
CORE’ AREAS ALLOWS A
DIFFERENT APPROACH
TO BE TAKEN TO EACH.

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Here, it is often helpful to split technology into two separate areas of ‘core’ and ‘non-core’
focus, as this allows asset managers to take a different approach to each.

In the ‘core’ section, investment firms should place anything that can support them in
attracting or retaining business. Any technology or system that helps articulate their vision,
informs investment decisions, or is part of the product set, should be included in this first
section and be part of any agile programme.

The second area of ‘non-core’ focus relates to any technology that is commoditised, such as
reconciliations, which should be procured as a service where possible. This can allow firms to
devote greater resources to, and focus more closely on, their areas of expertise.

Other ways managers may use technology to gain a competitive edge include adopting a cloud-
first strategy. By placing architecture in the cloud, managers are able to reduce development cycles
and create a more flexible cost base. Investment firms should also sunset legacy applications as
new technologies are introduced to help prevent regulatory concerns that may arise later from
fractured data and operations.

Managers that have resource constraints may choose to outsource certain functions to a third-
party provider who already has the technology built into their solutions and the ability to invest in
technological innovation. Outsourcing can level the playing field for smaller or medium-sized firms by
reducing the amount of investment required to move away from an outdated technology model.

1. Rethinking the Operating Model: Using Technology to Gain a Competitive Edge

• Successful firms evaluate the role of technology in their operating models, and create integrated,
holistic solutions across their platforms.

• The most successful investment firms are not just moving to agile solutions; they are adopting an agile
mind-set. This includes hiring key talent to drive new and creative visions.

• Investment firms must consider whether it makes more sense to build or buy new technology solutions.
Asset managers must also be mindful about potential future limitations when making their selections.

• Splitting technology into ‘core’ and ‘non-core’ functions helps asset managers take a different
approach to each to maximise efficiencies.

• Asset managers should consider adopting a cloud-first strategy.

• Outsourcing certain functions to a third-party provider with technology built into its solutions
can help managers harness the latest innovations.

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2. Creating Holistic Compliance Functions

Regulation continues to be a focus of the investment industry, and as the

regulatory environment evolves, the role of compliance within the operating Regulation was the single biggest
model is also transforming. concern of financial institutions
in 2019.
According to a survey from ThomsonReuters,x regulation was the single biggest
concern of financial institutions in 2019. The most commonly cited challenges THOMSONREUTERS SURVEY
included financial crime, anti-money laundering and sanctions, culture and
conduct risk, and the adequacy and availability of skilled resources.xi

The Regulatory Landscape

In the last 10 years, the global regulatory landscape has changed in complexity.
Investment firms that want to stay ahead of the changes are looking at the role of
compliance through a new lens.

Key regulations, such as the European Union’s Markets in Financial

Instruments Directive (MiFID) II, are not just being implemented regionally,
but are under consideration globally. MiFID II regulation saw the unbundling
of investment research from execution, and there are signs that managers
outside of its scope are voluntarily seeking to adopt the same unbundling as
an example of best practice.xii

For example, MiFID II is not mandated in Asian markets but has become best
practice in cross-border markets such as Hong Kong, Australia, and Singapore
which have implemented their own Manager-in-Charge regimes. Modernisation
and the advent of multiple post-trade regulations - such as Form CPO-PQR,
Form PF, and form N-PORT in the US, and the Alternative Investment Fund
Managers Directive (AIFMD) in the EU - are also adding a sense of urgency to the
adoption of new standards.xiii

While many of these regulations are more prevalent outside the U.S., they are
slowly being adopted as best practice as managers compete with each other to
be seen as best-in-class in terms of their regulatory compliance and adherence
to the highest standards. The globalisation of key regulations – driven in part by
competition – is therefore an evolving trend.

Regulations have also emerged that are focused on culture and governance.
The UK’s Senior Managers and Certification Regime (SMCR), for example,
effective from December 2019, focuses more exclusively on personal conduct to
drive standards of investor protection and market stability.

Australia’s Banking Executive Accountability Regime (BEAR) lays out similar

requirements, while the U.S. Securities and Exchange Commission’s (SEC)
Regulation Best Interest Rule will require broker-dealers and investment
advisors to rethink advice models, disclosures, supervisions and compliance
oversight. They will likely also need to overhaul their end-to-end technology and
operational infrastructures to adapt.xiv

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Other regulators, such as the Monetary Authority of Singapore (MAS) and the DEMAND FOR SKILLED STAFF AND TOP
Central Bank of Ireland (CBI) either are consulting (in the case of Singapore) THREE COSTS OF COMPLIANCE*
or are looking to consult (in the case of Ireland) on bringing in accountability
regimes in the near future.

Another aspect of regulation that is important to keep in mind is that which

governs data, such as data privacy and storage. As new laws concerning the use
of data come into effect, such as the EU’s General Data Protection Regulation
86%
DEMAND FOR SKILLED STAFF AND
(GDPR) and the California Consumer Privacy Act (CCPA) in the U.S., firms need to
KNOWLEDGE.
ensure their processes can adapt accordingly.

As the industry increasingly moves towards principles-led regulation, asset

73%
managers need to be more tailored and forward-thinking in their approach
to meeting regulatory obligations. This is because under principles-based
regulation, the onus of compliance lies with each individual organisation
to define their approach to meeting standards, and evidence how it meets ADDITIONAL SENIOR STAFF REQUIRED
regulatory requirements. TO COPE WITH VOLUMES OF
REGULATORY REQUIREMENTS
For asset managers, ensuring compliance with multiple regulations – with
accompanying requirements for reporting and transparency, disclosure and risk

52%
management – is not necessarily straightforward. A firm’s operating model must
both facilitate these requirements and adapt to meet future regulatory change.

Key Regulation and Compliance Considerations

INCREASED PERSONAL LIABILITY
Part of the challenge for asset managers is determining who takes on the
responsibility for regulatory compliance within an investment firm. This is often *Identified by respondents of the
ThomsonReuters Costs of Compliance
divided between chief operating officers (COOs), heads of legal, heads of
Survey 2018 xv
compliance or chief compliance officers (CCOs), and heads of regulatory change.

While some investment firms have ring-fenced regulatory responsibilities to

certain named individuals or departments, others are adopting best practice by
embedding compliance considerations across their organisations. In this way,
no department or region is bearing the brunt of the responsibility in isolation. Successful asset managers
Successful asset managers embrace regulation collectively as an organisation, embrace regulation collectively
adopt a global approach, and build a sustainable ethos and culture into their as an organisation, adopt a
operating models. Most importantly, they have avoided the development of large, global approach, and build a
‘siloed’ compliance functions within their organisations. sustainable ethos and culture
Technology may provide part of the solution to compliance challenges. Regulatory into their operating models.
technology (RegTech) tools hold the promise of allowing asset managers to
proactively deal with regulatory change, and embed their policies and procedures
into more manageable, accurate processes.

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In a 2019 RegTech brief, EY breaks down new technologies in the regulatory reporting
space into five key areas: report automation platforms, visual analytics, robotics, next-
generation data architecture, and business process management.xvi

EY points out that regulators, RegTech firms, professional service organisations and
financial institutions will all need to work together in an effort to continue to innovate,
reduce overall costs of compliance, and accurately and effectively report to regulators.xvii

To remain competitive, asset managers will need to be forward-thinking – considering

regulatory changes on a two to three-year time horizon, and dealing with challenges
in a strategic way. This means building a framework into their operating models,
and leveraging existing practices and processes already in place. Most importantly,
investment firms will need to adopt a holistic approach, rather than considering each
new regulation as piecemeal – and they must be global in their approach.

2. Rethinking the Operating Model: Building Holistic Compliance Functions

• Successful firms have avoided the development of large, ‘siloed’ compliance functions within their
organisations, and have resisted delegating responsibility for compliance to certain groups or individuals.

• RegTech helps asset managers proactively deal with regulatory change.

• Investment firms should be forward-thinking and consider regulatory changes on a two to three-year time horizon.

• Asset managers must adopt a global and holistic approach to regulation in order to manage their
compliance functions successfully.

• Firms can utilise solutions available to support regulatory compliance through the application
of technology and data.

• For example, an outsourcing provider’s access to transaction data can allow it to help investment
managers meet their transaction reporting requirements under MiFID II.

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3. Building an Ecosystem of Outsourcing Partners

As asset managers move into new areas of business and diversify their
strategies, the tools they use and the approaches they take to manage different
products and services can change. As they grow, firms may look to outsourced
providers to enhance or replace their in-house capabilities. By embracing
outsourcing and developing an ‘ecosystem’ of trusted partners, asset
managers can create solutions that provide greater scale, flexibility and speed
to market – and in turn, help them achieve Operational AlphaTM.

Supporting a legacy silo structure of outsourced providers can be problematic.

Monitoring complex assets becomes a resource drain, and is economically
unstable for many investment firms.xviii At the same time, as more activities
duplicate, there is a greater potential for errors, misunderstandings, and
misalignments between parties. Operational frameworks may spring up to
consolidate fragmented data sets or to oversee different outsourcing suppliers.
When this happens, ‘shadow’ systems – pockets of resource dedicated to
duplicating or checking work of other parts of the organisation or outsourced
providers – are sometimes created.

Key Considerations Concerning the Outsourcing Ecosystem

Many organisations, particularly larger firms taking a multi-sourcing approach Technology must be organised
with different suppliers, struggle with service standardisation. Having multiple so the data is accessible and
providers can mean dealing with vastly different service approaches or systems flexible for all parties and
set-ups. They may therefore employ staff to cross-check and normalise the platforms.
work of multiple suppliers in order to manage their day-to-day business, which
can be costly and inefficient.

How can investment firms address these challenges? First, technology must
be organised so the data is accessible and flexible for all parties and platforms.
Asset managers should avoid ‘vendor lock-in’ - a situation where technology,
process, and partners are inextricably linked and impossible to separate.

In addition, investment firms and their service providers should be

‘technology agnostic’ and have the flexibility to change their suppliers or
approach as required.

The most successful investment firms are holistic in their thinking. Rather than
working on a case-by-case basis, they adopt a broad strategy for building
their systems, and are mindful of how technology selection and integration
may impact future requirements for expansion. They develop a ‘best-of-breed’
ecosystem of technology and outsourcing partners, and have strategic or
preferred partners in place at a functional level.

It’s important to remember that asset managers can outsource activity but
not responsibility. For this reason, the oversight function gains even greater
importance under an outsourcing model.

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Planning for Expansion

However, ahead of each business expansion, asset managers need to assess the Successful asset managers are
likely long-term costs of building in-house capabilities versus buying them. What mindful of how technology
are the costs of procuring and maintaining both the technology and the resources selection and integration may
to carry out the new function? Would the new function be duplicating work already impact future requirements for
carried out by other parts of the business or by an outsourced partner?
expansion.
In a ‘buy’ scenario, managers should see whether there are synergies with existing
suppliers at the process level, and whether the supplier technology integrates with
existing systems.

Firms that want to be more efficient need to carefully review their outsourcing
arrangements, remove duplicative processes where possible, and consolidate
services with providers that can offer global solutions.

3. Rethinking the Operating Model: Building an Ecosystem of Outsourced Providers

• Asset managers should avoid ‘vendor lock-in’ - a situation that occurs when technology,
process, and partners are inextricably linked and impossible to separate.

• Investment firms and their service providers should be ‘technology agnostic’, with the flexibility
to change their suppliers or approach if necessary.

• Rather than working on a case-by-case basis with each supplier, successful asset managers have adopted
a broad strategy for building their systems, and are mindful of how technology selection and integration may
impact future requirements for expansion.

• Asset managers should complete a ‘build-versus-buy’ assessment before diversifying.

• Outsourcing provides access to scale and new solutions to support a business as it

grows and its need for new capabilities evolves.

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4. The Front Office Is Ripe for Change

For many asset managers, the front office has been an untouchable component of Some start-up firms choose to set
their operational framework. Functions such as trading have been considered core up a business based entirely on
to asset management. Managers have tended to bundle their front office activities an outsourced, scalable model
together, while outsourcing their back and middle office functions. that can be ‘flexed’ up and down
In today’s market, many firms have cast their eyes to components of the front
as market conditions dictate.
office, particularly trading-related functions, and are embracing new solutions and
approaches. This is partly because technology has blurred the lines between front
office and middle office solutions and functions, and partly because the enormous
pressures facing asset managers do not seem likely to abate anytime soon.

Cost, again, is a key driver of change. The costs of building and running a trading
desk have increased. In the case of international asset managers in the U.S.,
Greenwich Associates found that investment research budgets had dropped
45% between 2009 and 2018. Meanwhile, the average trading desk manages 20
execution relationships and 32 research relationships with just two full-time traders.xix

Outsourcing front office functions such as trading is often seen as a way for asset
managers to control costs and also gain access to technology and expertise by
partnering with firms that offer scale and specialisation.

As mentioned earlier, for mid-size and smaller players, outsourcing is also an

opportunity to level the playing field. Some start-up firms choose to set up a
business based entirely on an outsourced, scalable model that can be ‘flexed’
up and down as market conditions dictate.

FOR MID-SIZE AND

SMALLER FIRMS
OUTSOURCING IS AN
OPPORTUNITY TO LEVEL
THE PLAYING FIELD.

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Some established managers are also outsourcing up the value chain across
all front office functions, such as trading, foreign exchange, and transition
management. In some cases, they are moving towards fully outsourcing all
traditional front office capabilities.

Top-performing managers have shifted their thinking from ‘front’, ‘middle’ and ‘back’
office to ‘alpha’ and ‘non-alpha’-generating activities – with only functions critical to
alpha generation remaining a core part of the operations.

Key Front Office Outsourcing Considerations

As responsibility cannot be outsourced, investment firms must ensure that they retain
sufficient oversight, and that they are given full transparency across all systems and
controls. They must also ensure that they are working with secure, well-capitalised,
independent counterparties that are heavily invested in technology and cyber-
security – and have lengthy experience in outsourcing partnerships.

4. Rethinking the Operating Model: Outsourcing the Front Office

• Managers have traditionally handled their own front office activities while outsourcing
back and middle office functions – but this is changing.

• Outsourcing is seen as a way for asset managers to control costs and gain access to technology
and expertise by partnering with firms that offer scale and specialisation.

• In some cases, investment firms are moving towards fully outsourcing all traditional front office capabilities.

• Many top performing managers have shifted their thinking from ‘front’, ‘middle’, and ‘back’
office to ‘alpha’ and ‘non-alpha’-generating activities.

• While fund managers can outsource certain functions, they cannot outsource responsibility. Investment firms must
ensure that they retain sufficient oversight, and that they are given full transparency across all systems and controls.

• Multiple options are available, whether that is front, middle, component, or end-to-end outsourcing,
which allow managers to flexibly design a model that best suits their needs.

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5. Incorporating Fund Distribution Into Your Operating Model

Raising assets is the lifeblood of any asset management firm, and distribution is
To safeguard against the risk
a vital component of the operating model. Given how challenging it is to identify of uncontrolled cost escalation,
new opportunities, it is unsurprising that fund managers are zealous about investment firms need to closely
broadening their distribution, including looking to new asset types and markets weight up the cost/benefit
for asset growth. calculations of market entry,
fund structures and domiciles,
Investment managers are expanding their distribution efforts by entering new
and business strategy.
markets and offering new products in both their domestic strongholds and
overseas. While distribution can be focused on internal markets, PwC predicts
that regional and global platforms will dominate the industry.xx The firm believes
managers will need to determine early on which jurisdictions to establish their
platforms in, and which product sets to offer.

The structure of any new fund product should be designed to meet the needs
of the target investor audience. Managers should consider where and to whom
they intend to sell, and look for the right legal and expense structures to meet the
demands of their target investors.

An important consideration is having ‘boots on the ground’ to establish rapport

with policymakers and standard setters in every jurisdiction of operation.
According to PwC, the soft skills of diplomacy and cultural knowledge will be as
important as traditional functional skills.xxi

Complexities of Cross-Border Distribution

One area of expansion is cross-border distribution. For investment firms that get
cross-border distribution right, the rewards can be substantial – but the market is
not without its complexity.

For example, a UK investment firm seeking to register five funds across Italy,
Switzerland, Germany, Austria, and France would need to:

• Set up new currency share classes in euros and Swiss francs,

and support new FX requirements.

• Register with the appropriate authorities for each country

as regulations and market practices dictate.

• Appoint a paying and/or representative agent to service investors locally.

• Translate their Key Investor Information Documents into

at least three different languages.

• Ensure their marketing and pitch books are legally compliant in each market.

• Appoint a third party to do their tax reporting where required.

Therefore, the cost of these activities is a significant component that becomes a

concern even before marketing and sales considerations come into play.

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To safeguard against the risk of uncontrolled cost escalation, investment firms need
to closely weight up the cost/benefit calculations of market entry, fund structures Firms may not have accurate
and domiciles, and business strategy. Would a targeted approach, focusing on sales data for their distribution
a particular segment of a market, or a small group of countries where certain
network, which makes it difficult
strategies are used, make more sense than large scale market entry, for example?
to understand the success of
Importance of Investor Data sales managers and distributors.

When investment firms operate across multiple markets from a single fund domicile
using third party distributors, they often find it difficult to measure exactly where
their sales success is coming from – and even from which distributors the flows are
originating – adding further complexity.

When subscriptions arrive via a global distribution platform, they are held in the
fund register as part of a larger nominee position. Acquiring data that relates back to
the underlying distributor is a bit like peeling back an onion, and a very painstaking
manual process.

In addition, firms may not have accurate sales data for their distribution network,
which makes it difficult to understand the success of sales managers and
distributors, and makes sales planning and deciding where to focus and deploy
resources challenging.

In Asia, there is no single overarching fund framework, and cross-border distribution

into global markets where UCITS/Cayman and local funds compete is common.
Decisions around sales strategy, distribution channel, target market, fund structure
and domicile are complex and need to be carefully considered and planned in
advance by the fund manager.

ENSURE TECHNOLOGY
ARCHITECTURE
MEETS THE NEEDS
OF UNDERLYING
INVESTORS.

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MANAGING ASSETS ACROSS THE GLOBE: RETHINKING THE OPERATING MODEL

Key Fund Distribution Considerations

Before entering a market, asset managers must ensure that sales and service are a
key part of their business proposition, and that their technology architecture can
meet the needs of their underlying investors, particularly as those investors tend to
be increasingly global.

At a time when distribution shelf space is shrinking, and the number of mutual funds
in developed markets is expected to decline by up to 25%,xxii it is more important
than ever to build the right operating capabilities around distribution, and to
understand the needs of the target investor. Leveraging key partners to support a
global and/or local model that delivers in a local time zone, language, and other
cultural nuances, while providing investors with 24/7 access to their data, will be
critical to success.

5. Rethinking the Operating Model: Incorporating Fund Distribution

• Distribution is increasingly becoming regional and global.

• Cost is a significant component across distribution channels.

• When investment firms operate across multiple markets from a single fund domicile using third party
distributors, they often find it difficult to measure exactly where their sales success is coming from.

• Before entering a target market, fund managers must ensure their technology architecture and
product construct can meet the needs of their underlying, increasingly global investors.

• Leveraging key partners to support a global and/or local model that delivers in a local
time zone and language, and provides investors with 24/7 access to their data, will be key.

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MANAGING ASSETS ACROSS THE GLOBE: RETHINKING THE OPERATING MODEL

Rethinking the Operating Model: The Future is Now

The investment industry is changing, and now more than ever, agility and flexibility Successful operating models
are keys to success. A myriad of pressures, from falling margins and revenues to can lead to successful
the rapid pace of technological innovation, shine the spotlight on asset managers’ businesses – while inefficient
operations. Those who stay ahead of the curve are adopting new solutions and ones are unlikely to survive in
seizing opportunities to future-proof their operating models. the long-term.
Successful operating models can lead to successful businesses – while inefficient
ones are unlikely to survive in the long-term. The most successful asset managers are
those that grow their businesses while controlling their costs. In today’s compressed
market condition this is best achieved with Operational AlphaTM.

While the pressures are significant, so are the opportunities. Whether the solution
involves embracing new technology, navigating regulation differently, leveraging
the right outsourcing partners, re-evaluating front office functions, or taking a fresh
approach to distribution, the successful asset manager of the future will integrate
people, processes, and technology – and prioritise all three.

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MANAGING ASSETS ACROSS THE GLOBE: RETHINKING THE OPERATING MODEL

FOOTNOTES

i
Bain & Company “After the Easy Money Boom, Stark Choice for Asset Managers” Last Updated: 2 July 2018
https://www.bain.com/insights/after-the-easy-money-boom-stark-choices-for-asset-managers/
II
Morgan Stanley and Oliver Wyman Blue Paper “Winning Under Pressure” March 2018.
https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2018/march/Wholesale-Banks-Asset-
Managers-Winning-Under-Pressure-2018.pdf
III
Morgan Stanley and Oliver Wyman Bluepaper “Searching for Growth in an Age of Disruption”, 2019,
https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2019/mar/wholesale-banks-asset-
management-analysis-2019.pdf
IV
Boston Consulting Group “How Asset Managers Can Win in a Winner-Takes-All World”
https://www.bcg.com/en-gb/publications/2019/asset-managers-winner-takes-all.aspx
V
Confluence “Asset Management Trend Survey Report Q4 2017” 2017
https://www.confluence.com/uploads/confluence-2017-asset-management-trend-survey-report.pdf
VI
PwC “Asset & Wealth Management Revolution” October 2018Vhttps://www.PwC.lu/en/asset-management/awm-
revolution-pressure-on-profitability.html
VII
Morgan Stanley and Oliver Wyman Blue Paper “Winning Under Pressure” March 2018.
https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2018/march/Wholesale-Banks-Asset-
Managers-Winning-Under-Pressure-2018.pdf
VIII
Ibid.
IX
Confluence “Asset Management Trend Survey Report Q4 2017” 2017
https://www.confluence.com/uploads/confluence-2017-asset-management-trend-survey-report.pdf
X
ThomsonReuters “The Cost of Compliance 2019 Report” Last Updated 27 June 2019
https://blogs.thomsonreuters.com/answerson/cost-of-compliance-survey-2019/
XI
Ibid.
XII
Financial Times “Invesco and Wellington Eye Global Adoption of MiFID II” Last Updated 4 March 2019
https://www.ft.com/content/075382ef-6c58-3b21-9010-63aa8e013d70
XIII
Confluence “Asset Management Trend Survey Report Q4 2017” 2017
https://www.confluence.com/uploads/confluence-2017-asset-management-trend-survey-report.pdf
XIV
Oliver Wyman “Time To Start Again: Preliminary Views on Regulation Best Interest” 2019 https://www.oliverwyman.
com/content/dam/oliver-wyman/v2/media/2019/may/Oliver_Wyman_Regulation_Best_Interest.pdf
XV
ThomsonReuters “The Cost of Compliance 2018” 2018 https://legal.thomsonreuters.com/content/dam/ewp-m/
documents/legal/en/pdf/reports/cost-of-compliance-special-report-2018.pdf
XVI
EY “Regulatory technology (RegTech)Navigating the right technology to manage the evolving regulatory environment”
2019 https://www.ey.com/Publication/vwLUAssets/ey-regulatory-technology-regtech/$FILE/ey-regulatory-technology-
(regtech).pdf
XVII
Ibid.
XVIII
SEI “The Investment Management Operating Model 2.0” 2017
https://seic.com/sites/default/files/SEI-IMS-InvMgmtOps-2.0-EU.pdf
XIX
Greenwich Associates “Outsourced Trading: Helping the Buy Side Improve Execution and Enhance Operational
Efficiency” Q4 2018 https://www.greenwich.com/press-release/new-report-finds-outsourced-trading-gaining-
popularity-us-institutional-asset-managers
XX
PwC “Asset Management 2020: A Brave New World” 2014 https://www.PwC.com/gx/en/asset-management/
publications/pdfs/PwC-asset-management-2020-a-brave-new-world-final.pdf
XXI
Ibid.
XXII
PwC “Asset & Wealth Management Revolution” October 2018
https://www.PwC.lu/en/asset-management/awm-revolution-pressure-on-profitability.html

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MANAGING ASSETS ACROSS THE GLOBE: RETHINKING THE OPERATING MODEL

A B OUT N O RTH E R N TRU ST

A proven partner to some of the world’s most successful and innovative investment
managers, Northern Trust has over 30 years’ experience administering the full spectrum of
investment strategies for clients around the globe. We help facilitate improved speed-to-
market, operational efficiency, business focus and distribution for our clients’ traditional
and alternative funds. Our solutions include fund administration, global custody,
investment risk analytics, back-and-middle office investment operations outsourcing,
institutional brokerage and solutions to support regulatory change.

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