2023 Trend: Managers Will Increase Investment in Process Automation, Technology, and Data Management

Kathy McDermott

Managing Director, Research

Kathy McDermott has more than 25 years of experience in the financial services industry. Kathy, who joined Cutter Associates in 2011, has authored multiple Cutter Research reports on a wide range of topics. She spent ten years as a consultant for a variety of asset management firms, with a focus on business analysis for front- and middle-office projects. Kathy was previously the senior business analyst, equity trading systems, at Wellington Management, specializing in the firm’s proprietary electronic and basket trading applications. Earlier in her career, Kathy worked for Thomson Financial Services (now Thomson Reuters), supporting FirstCall and PORTIA clients in Hong Kong, Japan, Singapore, and Thailand, and later went on to manage PORTIA implementations. She also worked at LongView (now Linedata) as an account manager and then product manager of electronic trading. Kathy earned her bachelor of arts in mathematics from Hamilton College.

Recent research assignments and publications include the following:

Alternative Data and the Expanding Universe of Investment Information
Cutter Benchmarking: Data Management
Cutter Benchmarking: Market Data Administration
DataOps: In Theory and Practice
Enabling Data Analytics
The Evolving Front Office Support Model
Evolving Data Governance: Building a Data Culture
Making Snowflake Part of Your Modern Data Platform
Managed Data Services
Market Data Administration
Order Management Systems
Outsourced Trading: Has the Time Come?
Reference Data Management Solutions

Tom Phipps

Consulting Principal – Front Office

Tom Phipps has more than 25 years of experience in the investment management industry, with a background in the automation of the investment process, including portfolio management, risk analytics, trading, compliance, performance, operations, investment accounting, data management, and systems integration. He leads Cutter Associates’ Front Office practice, providing deep expertise in front-office vendors and operating models. His consulting experience includes strategic advisory, systems selection, and change management execution engagements for some of the world’s most prominent investment management firms. He also leads the development of Cutter’s Strategy and Search methodologies.

Tom gained his expertise in technology and operations at software vendors and asset management firms, where he held leadership roles in technology management. His prior experience includes Senior Manager at Deloitte Consulting, Chief Technology Officer at PanAgora Asset Management, Chief Technology Officer at Atlas Venture, Vice President of Operations at DSTi North America, and various management roles in technology and professional services at NCS Financial Systems (now SunGard AMS). Tom holds a bachelor’s degree in operations management and management information systems from Florida State University.

Feb 23, 2023

The following blog post is one in a series of Cutter 2023 Trends that provide insights into industry challenges and considerations for our clients and member firms in 2023 and beyond.

Although no single asset type performed particularly well in 2022, as asset managers and asset owners look forward to 2023, the industry’s leading managers are pursuing operating model improvements to better provide value to their clients and to find alpha.

For public markets, we may see a resurgence of active management, and while alternative assets did not perform well in 2022, we predict that firms will increase their investment in alternatives and diversify the types of alternative assets they invest in.

We see evidence of this through recent events, including a bill signed into law in late December that allows the New York public pension funds to raise their alternative investments allocations from 25% to 35% and fund companies acquiring shops that specialize in alternative investments, such as Franklin Templeton buying private equity manager Lexington Partners and real estate firm Clarion Partners (through its acquisition of Legg Mason).

Not only do we see firms expanding their investments in private equity, they also will look to private debt, middle-market loans, infrastructure, real estate, and other real assets. Firms need the right tools to support the investment process for these instruments, including the complex multi-level fund structures, cash flow modeling, forecasting, trading, accurate performance, and exposure reporting, with the ability to roll it all up into a total portfolio view.

Investment in tools that allow for complex multi-level fund structures, unstructured data collection/aggregation, and other cutting-edge technologies will enable continued investment in diverse asset classes. Blockchain/distributed ledger technology (DLT) and support for asset tokenization, regardless of when, or if, the world of cryptocurrency and non-fungible tokens (NFTs) recovers will continue to evolve. We see DLT being used to introduce new types of tokens, reduce transaction settlement times, lessen trading errors, and cut costs. While all this is unlikely to come to fruition in 2023, we believe managers will increase their investment in this technology year over year.

In addition to using modern data platforms and analytic tools, AI, machine learning, and robotic process automation (RPA) are technologies that will play a critical role in streamlining the investment process, regardless of asset class. Firms will increasingly employ AI and ML to collect, “read,” and process the unstructured data needed for alternative assets. And these technologies will become easier to use as firms enable operational efficiencies and standardized processing. Moreover, managers’ use of data science, predictive analytics, natural language processing (NLP), enterprise content management, and modern collaboration tools will modernize the investment-decision support process and maximize the value of their research teams.

While our industry still faces market uncertainty and consolidation pressures, we will continue to see leading managers invest in process automation, technology, and data management as ways to ensure their success and differentiate themselves.

To speak with a Cutter analyst or consultant about this trend, contact us at [email protected]. For more 2023 trends, see our whitepaper Trends in Asset Management: 2023 and Beyond.