The top priority for asset managers in 2007 should be product innovation. Continuing pricing pressure on passive and traditional actively managed products is challenging revenue growth, and the changing demands of both institutional and retail investors require new product solutions. Asset managers that don't rapidly respond to their clients' needs risk being left by the wayside.
This innovation may take form in a variety of products, from alternative institutional portfolio strategies -- such as portable alpha, liability-driven investment (LDI) and hedge funds -- to retail "go anywhere" and hedge-like mutual funds. Alternatively, it could result in entirely new products that we've not yet seen in the market. The net result provides higher fee revenue for the asset manager and better alpha generation for the client.
What does this mean to the IT department? It may mean changes to existing front-, middle- and back-office systems, and/or investment in applications to fill newly exposed gaps. We'd point to architecture and integration as the main IT implication for 2007. Successful architecture projects will materially improve corporate agility, as measured by faster and cheaper product development cycles, improved time to market for new product launches, and extensibility of existing IT hardware and software.
Another key IT priority in 2007 will be derivatives support. Since many of the new buy-side products rely on derivatives, we expect to see a strong focus on the entire post-trade life cycle for derivatives processing, from matching and reconciliation to accounting, valuation and third-party assignment.
As we enter 2007, buy-side firms should be thinking about how they are positioned to support their clients' changing product needs and, as a result, IT managers should be thinking about how to support this change. Though it may sound daunting, complacency is not an option. -- Matt Nelson