Operational Alpha on the Buyside: Strategic Levers to Exploit “Ecosystem in a Box” Paradigms

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8 July 2021

Celent presents the necessary operational building blocks and change enablers that will be pertinent to navigate the mechanics of change ahead


Driven by the imperative for sustainable cost savings and profitability, investment managers are renewing their focus to double down on their core competence in portfolio design, asset management, and distribution—while leaving essential non-core activities to third party providers that have the requisite software and service propositions. Celent believes that a fit-for-purpose technology foundation will be key to navigating the future and delivering next-generation capabilities.

Rather than merely redesigning processes, we expect leaders to reimagine the asset management value chain with a more digital vision, rather than merely live with and adapt to the encumbrances of their firms’ legacy systems. We also anticipate that there will be important opportunities for a new breed of providers that can blend software and service capabilities at scale to assist investment firms in pursuing these changes.

Navigating the changes ahead will often not be straightforward. In this study, we present tactical wisdom to help investment firms pursue important change levers to maximize successful technology and operational outcomes -- “operational alpha.” In our parlance, attaining “operational alpha” is not merely about procuring a “single integrated front-to-back solution” or creating a one-size-fits-all approach. Instead, it’s about achieving the optimal balance of packaged standardization and industry interoperability for activities that require scale and efficiencies while maintaining the ability to flexibly assemble proprietary datasets and quickly customize fit-for-purpose strategies to drive an information advantage for portfolio decisions.

We anticipate that firms taking an ecosystem approach to systems and operational rationalization, automation, and outsourcing will be able to realize an average cost reduction of up to 30% across front and middle office activities underpinned by next-generation digital, automation, and advanced data/analytics capabilities in the next three to five years. The biggest levers to reduce costs are automation and better use of data and analytics, as firms typically spend a substantial 10-20% of their cost base on data management and operations.

In the years ahead, competitive advantage in the investment industry will come not only from owning client/investor franchises, attracting talented investment managers, and leveraging proprietary data but also from ensuring core investment functions and operations have dynamic access to data-driven analytics and insightful analysis of primary and secondary public data sources. With these resources, portfolio managers will be able to efficiently collaborate to make meaningful investment decisions.

In this study, we share the necessary operational building blocks and change enablers that will be pertinent to navigate the mechanics of change ahead for the investment sector.

To learn more about how investment management firms are upgrading their operations and technologies, please contact Celent for more information on our latest reports on these topics (subscribers can link through to the full reports):