Asset managers, facing a stronger demands for more transparency than ever before, are starting to ramp up the use of performance measurement technology to satisfy investor's requests, according to research from CEB TowerGroup.
The use of newer technologies, such as data visualization and newer tools that can track performance, must overcome asset manager's tendencies to rely on entrenched solutions, according to CEB TowerGroup. "Asset managers face increased pricing pressures, shifting investor preferences, regulatory burdens, and an increasingly sophisticated fund landscape," according to the CEB TowerGroup report. "However, despite these challenges and a bright overall IT investment landscape, asset management firms are entrenched in their current performance measurement systems and haven’t realized the urgency of investment in systems capable of meeting these needs."
One reason why performance measurement hadn't received adequate investment is possibly because it had a fragmented user base, from front to middle to back-office users. "When we started to map out the performance measurement landscape, we realized it was quite an arcane area, since there are various way to determine performance and many different areas of a firm use it in different ways," says Gert Raeves, research director in the capital markets practice with CEB TowerGroup. "It is an unusual piece of back-office technology, as it reaches out to the investor, the front office and the middle office as well." Front and back office users rely on performance measurement metrics for different things. Front office users may use the technology to rate the performance of a trader, while back office professionals could use it for regulatory reporting.
However, according to the author of the report, the performance measurement space is on the cusp of innovation. "Data visualization and dashboard tools were under developed" for performance measurement, Raeves says. "It is an area of technology where there is active innovation. And t is one of the areas where customers say performance measurement has a high importance." As a result, spending on the technology "is going to grow at higher rates than other mid- to back-office technologies," Raeves says, noting that spending on performance measurement technology will grow at 6.9% annually through 2017. The highest annual growth will be in the Asia/Pacific region and Latin America, while the largest dollar spend will be in North America.
Business DriversAsset managers are starting to spend on performance management tools since investors are essentially hammering them for more information and transparency. "First, there is pressure on active investment strategies versus passive strategies,"Raeves says. "There has been a three-fold increase in in-flows to passive funds. The active funds have to show that they match and can exceed passive strategies."
In addition, newer types of fund are more complex and older tools might not be able to calculate performance correctly. "The complexity of the funds themselves is different," Raeves says. "Building a fund of funds strategy is different. The ability to do an analysis on a fund of funds strategy is harder and the tools have to be more complex."
Overall, "It is driven by in the way institutional investors and retail investors are directing their investments," Raeves says.
Lastly, asset managers are being asked for reporting more frequently. "Firms are having to open up data and access to analytics," Raeves adds. "In the past, it was quarterly reporting. Now, investors want those data sets done intraday."