This article was written by Philippa Thompson, Head of Bloomberg’s Buy Side Enterprise Sales in APAC for The Asset. It is licensed by Bloomberg.
Markets were still recovering at the start of 2020. A bitter trade war, geopolitical tensions, and social unrest all pushed the global economy to register its slowest pace since the global financial crisis (GFC). COVID-19 threw another spanner in the works and upended any business continuity plans that financial firms had in place. While the sell-side has since sustained a reasonable first quarter due to the heightened volatility. The buy-side was already disadvantaged before the year began due to a growing list of challenges.
This included regulatory changes that were introduced following the GFC. The industry faced increasing pressure on greater compliances over internal control procedures and operational capabilities, including pretrade and post-trade compliance. Firms caught a lucky break when the pandemic forced regulators to delay the implementation of uncleared margin rules.
However, the buy-side is not only being squeezed by regulation, it is also managing financial burdens brought on by issues such as scalability, data quality, security and standardization. The industry is still playing catch-up on economic and operational challenges, made all the more painful by the coronavirus fallout. Wealth management firms have had to scrutinize their investments in technology, in a mad dash to immediately adapt, slash costs, and find innovative solutions. As a result, this has encouraged the acceleration to cloud adoption.
Businesses are seeing a migration of up to 70% to 80% of their services onto the cloud, as asset management companies increase their cloud-based usage for trading and client engagements because of COVID-19 restrictions.
The age-old adage still holds true: time is money. While firms want to save costs in the long-term, they are also keen to prioritize efficiency. As asset managers navigate the investment impacts of the coronavirus, resilient technology solutions and operational models are becoming more important.
The industry is juggling both third-party vendor platforms and in-house systems. Asset managers are increasingly outsourcing their trading and execution processes to bring down costs and focus on their core business. However, financial and regulatory strains saw larger firms also leverage their in-house capabilities.
This has left the buy-side trying to disentangle itself from a complex web. While there is no one-size-fits-all solution, analyzing a firm’s dependency on both practices will provide greater insight into operational efficiency. Organizations will need to identify collaborative solutions that work for, rather than against, them. Expect the buy-side industry to invest steadily in streamlining processes and scalable technology that support firms at every stage of the investment lifecycle, from pre-trade to post-trade operations.
Apart from technology and operating models, we believe there will be more strategic collaboration designed to remove integration complexity, enabling customers to focus on innovation and scale across the enterprise. Risk models to help asset managers create better hedging strategies in volatile times, and advanced portfolio management tools to manage market dislocation will also be critical. And more and more, we will see firms adopting more holistic buy-side solutions with multi-asset capabilities, enabling trading derivatives across the investment life cycle.
The financial industry will be dealing with the far-reaching repercussions of the pandemic long after the virus stops dominating headlines and markets recover. The buy-side will need to brace the current challenges and find solutions at every stage of its investment journey if it wishes to come out on top. Efficient, collaborative and resilient technologies, operating models, and practices will ensure that the buy-side can survive and thrive the current and future crises to come.