Fund Governance Insights

Innovation during a pandemic: needs must

6 minute read time

The coronavirus pandemic has forced many businesses into taking drastic action, and the investment industry is no exception.

Highlights

  • Digitisation and technological trends that were already in motion before 2020 have been accelerated by the pandemic
  • Innovations in asset management include the use of artificial intelligence to read fund prospectuses, speeding up decision time to a matter of minutes
  • Drone technology is also reportedly being employed to monitor real estate as part of valuations, or to monitor progress of infrastructure projects

As a result of the coronavirus outbreak and subsequent lockdown, asset managers have intensified their focus on efficiencies, data-sharing practices and the practicalities of a mass shift towards working from home. But digitisation is proving to require a more holistic approach, rather than simply the automation of certain processes.

“In the asset management industry, there is significant variation in organisational scale,” says David Marriage, asset and wealth management data and analytics leader at PwC. “There are large organisations that are spread globally, and small teams sat in a single office. Both set-ups have relied, to some extent, on siloed manual processes and reconciliations. One of the changes we’ve seen is that organisations of all sizes have become digital very quickly because they have had to.”

Marriage adds that a number of technological trends that were already in place prior to the start of 2020 have been accelerated by the pandemic. “There has been significant investment to improve the way data flows around the industry, but not everyone has harnessed that change. A lot of firms, and the functions within them, are still using their old legacy reporting tools and processes,” he says. “But now there is a realisation that by starting to leverage the investments that have been made – whether by asset managers themselves, by administrators or by other service providers in the market – there is an opportunity to digitalise and rethink operating models.”

Marriage continues: “So the conversation is moving towards ‘How do we become a much more digital organisation?’ as opposed to ‘How do we digitise the functions within our organisation?’. This shift in conversation is something we are seeing happen much more rapidly than before, and we expect this transition to continue for the foreseeable future.”

Doing the unthinkable

Of course, when a firm innovates, almost inevitably there is a compliance hurdle in the way.

Joe Woodbury, director of investment management solutions at compliance services firm Lawson Conner, addresses the point: “With homeworking on a sharp rise, it has been crucial that asset managers realise the importance of remote connectivity,” he says. “With tech-driven compliance solutions, firms have been able to effectively manage their global compliance obligations. We have seen a great uplift in enquiries for software to help firms manage their regulatory and compliance needs.

“With social distancing becoming the new normal, asset managers have quickly adapted their capability to remotely manage their compliance operations. And with the industry unable to facilitate face-to-face meetings, it has been vital that firms can comply with varying regulatory demands, while maintaining complete transparency to all stakeholders.”

Perhaps, then, that hurdle has proved to be illusory?

Mark Crathern, head of NatWest Trustee and Depositary Services (TDS), adds: “What the pandemic has done is proved that the previously thought impossible is possible. Everyone thought we couldn’t possibly move to a non-office environment, or move away from the manual processes that existed to an automated world that became almost paperless overnight. But we have.”

“Everyone thought we couldn’t move away from the manual processes that existed to an automated world that became almost paperless overnight. But we have”

Mark Crathern, NatWest Trustee and Depositary Services

Crathern says that, heading into the coronavirus crisis, the asset management industry faced a number of inefficiencies relating to processing and data sharing in particular: “We have seen the same data regurgitated three, four, five times to multiple parties – which takes time and is sent via various formats from faxes and attachments to .csv files or through APIs [application programming interfaces].

“In addition, the data that is flying around is largely out of date; and the way it is being communicated is materially inefficient, requiring technology investment at fund managers, fund accountants, transfer agents, depositaries and, not least, the investor community as well.”

Tooling up

To address this inefficiency, NatWest TDS is moving to a cloud-based data service to provide high-level analysis and insight to everyone from regulators to investors and fund managers themselves, Crathern explains.

“A depositary’s role at the moment is to confirm that everything that is supposed to have happened has happened,” he says. “With the investment we’re making in our business, we’re trying to move the industry from a confirmatory validation of historical events to a more insight-driven approach – for example, if an investor can see there is more volatility in the UK pub sector, they can assess what impact that would have not just on alternative funds that hold those assets, but also on the funds that hold the debt or equity of the companies that own those pubs.”

At present, Crathern adds, too much data is “sitting in storage boxes” in a variety of institutions, and is not really used in a productive way. “We want people to be able to interrogate the data, to look at what their risk appetite is, and make investments accordingly.”

In technological terms, for example, NatWest TDS will use artificial intelligence to read fund prospectuses: this will enable it to make decisions within minutes of a prospectus being published rather than the “days and weeks” it takes at present. Crathern adds: “We will also use AI and machine learning in core processing – making payments, for example, or validation of incoming assets into funds.

“And then we have Microsoft’s Power BI analytics capability, which is really the data insight and interrogation which will help us move from an operational-process business to a data-process business.”

The long view

Elsewhere in the industry, PwC’s Marriage says, there is increasing use of the likes of drone technology to monitor real estate as part of valuations or monitor progress of infrastructure projects.

“There are also AI and machine learning technologies being used by clients in both the investment management and distribution teams, for example, prioritising transactions for a particular client by optimising the identification of the exposure required and the mechanism of investment required to achieve it, based on client requirements and a broader analysis of their portfolio.”

He adds: “Often, technology is implemented in quite innovative ways – but what we need to see is a move away from individual solutions using that technology to a more holistic, joined-up approach.”

Crathern says: “Our ability to embrace cloud technology without heavy investment to demise legacy systems, without long user acceptance testing [UAT] environments, and delivering at pace using agile methodology – that is the future for this industry and that future is now the present. You have to be aligned to that or you are going to be irrelevant.

“Any business that can’t adapt its system infrastructures or investment processes to an agile approach – to my mind, they are going to be irrelevant within one to three years.”

By Chris Torney