The Confluence of Tech and Ops in Asset Management

Author: NICSA

Breakthrough technology is reshaping the asset management business model at record speed. As tech and ops become increasingly interwoven, firms are positioning themselves to both leverage new opportunities and navigate potential complexities.

“Technology is advancing at an exponential rate,” Brandon Anderson, Relationship Executive, DST Systems, Inc., said to members on #WebinarWednesday. “A key strategy for many firms is to truly align and integrate technology and operations so that they are working together toward strategic goals.”

Anderson moderated the recent discussion, which was sponsored by DST Systems and featured a panel of three industry veterans. (NICSA members can replay an archived version of the webinar here).

From a technical perspective, Don Hunt, Director at BlackRock, focused on automation. “Whether it’s client onboarding or cash reconciliation, we’re looking for ways to automate and move to straight-through processing, if you will,” he said. “What that looks like in practice is operations staff configuring the policies and validation rules into the system… Increasingly, we’re starting to use newer technologies like big data and artificial intelligence to find anomalies so that we can surface those exceptions via an automated process.”

There’s also been a change in how quickly new technologies penetrate the market. “We’re delivering value to the operations staff on a monthly basis, and we’re looking to leverage third-party products,” he said. “At BlackRock, that tends to lean very heavily on open-source technologies — don’t reinvent the wheel, find some piece of code that that has solved the problem before, and use that to accelerate the speed to market.”

From an operations perspective, Michael Woodall, Chief of Operations, Putnam Investments, focused on the human element. “When we think about technology and our use of it in operations, we have to think about a core component of that — which is our people,” he said.

“What’s changed over time is the pace of change and an increase in the capability of ops professionals to apply technology to their jobs.”

Hunt agreed, emphasizing the importance of user experience. “We have increased our expectations around what technology should look like, what it should feel like, how it should work; and the systems of old that are clunky … have gone the way of the dinosaur,” he said. “We’re reducing clicks, eliminating re-keying and consolidating applications per function.”

Managing Risk

To implement these tech solutions and meet operational goals, many industry players turn to vendor partnerships.

“We do rely heavily on vendors,” said Chris Keller, Chief Operating Officer at Harris Associates. “We’re a $140-150B manager with 200 employees, so the only way you can develop that kind of scale is by ensuring that all of your local standardized activities are outsourced, which we pretty much have accomplished.”

Today, many vendors leverage the cloud when storing sensitive data. “When we buy a stock, when we open up a new relationship with the client, this information now is moving to the cloud and moving to vendors as a result of our strategy,” Keller said. “We’re looking for vendors to continuously improve their data security around the most sensitive data that we’re involved with.”

On the other hand, technology reduces human error. “Looking at the history in our own organization, our error rate right now is about one error out of 20K transactions,” Keller said. “A decade ago, it was ten times that. A lot of that has to do with technology and automation.”

“Naturally, automation is going to drive down your risk of errors, but there are other cases where it brings it up” Hunt added. “As we move to an automated or artificial intelligence world where computers are making decisions that previously humans would have made, you need to focus on making sure that the controls used are implemented through humans and coded into the system.”

At the end of the day, there’s no denying that fintech demand remains strong.We are in a digital economy and world, so we’re always thinking about to enable engagement with firms, advisors, shareholders and internal clients,” Woodall said.

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