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Key Industry Trends For The Buy-Side – 2022

Active ETF

Majority of the ETF’s launched in 2021 were Active ETF’s. This again is the second year in when ETF launches outpaced mutual fund launches. Increased market volatility and market uncertainty have been the key driver for advisors and investors to focus on actively managed funds.

Direct Indexing

Mid-size and to large investors who want more control over their holdings are preferring this strategy as they can benefit from tax-loss harvesting i.e. for tax alpha. Ability to buy fractional shares and lower transaction charges and technology advances collectively has sped up this capability for interested investors.

ESG

As interest continues to increase in this area, it will be interesting to see if data standards can develop that help in reducing ‘greenwashing’ by funds and allow comparison of ESG metrics across vendors more useful. The standards thus can drive data insights which will be valuable to ESG investors.

Digital Transformation

Financial firms are slowly embracing the ‘cloud’ with continued remote work and the pandemic speeding up the need to use the cloud to scale resources dynamically with reduced time to market. Hybrid cloud may be a way for initial adoption, but long-term multi-cloud will be preferable to reduce dependence on a single ‘cloud’ provider.

Key to successful cloud adoption will be to understand costs for cloud services and building a technology architecture using microservices that use the ‘cloud’ for its strengths. Plain ‘lift and shift’ model in the cloud will not be beneficial in the long term and may cost more to run in the cloud.

DATA as a potential Competitive Differentiator

The ability to understand and use data to gain powerful insights will be a key competitive differentiator for investment firms. Consolidating the data and providing access to this data to business users can drive new product development for additional revenue streams and position the firm for the long term. For operation teams, data insights can help reveal potential inefficiencies in workflows, thus help increase ‘operational alpha’ – A key driver in the today’s environment where fee compression and margin pressure has turned increased attention of the board towards focus on operational expenses.

How to go about ‘Digital Transformation’ and drive ‘Data’ insights?

Firms need to implement a roadmap to migrate from legacy to modern cloud architecture (a.k.a. microservices). In the interim, new module development and/or complex enhancements need to be built using newer technology with interfaces to existing legacy systems using API’s.

To unlock data, consolidating required business data into a cloud warehouse for deep insights (Reporting/BI) and provide access to this data directly to business users will be a necessity. For operational teams, the end goal is for all systems to use ‘cloud’ architecture that can scale horizontally and enable ‘Pay Per Use’ business model. 

 

 

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