New industry report highlights crucial lessons for the buy side following Covid-19 pandemic
SimCorp, a leading provider of integrated, front-to-back, multi-asset investment management solutions and services to the world’s largest buy-side institutions, and institutional finance industry consultant, Clear Path Analysis, have released a new global market report, exploring the role of technology, processes and people, in building a resilient, post-Covid operating infrastructure.
Gleaning insights across three roundtables held in North America, Europe and Asia Pacific, the report delivers perspectives from senior executives across asset management, pensions, insurance and banking. Emerging from the discussions are several themes for achieving operational resilience, ahead of the next global market event:
• The need to stress-test the resilience of a firm’s operating model beyond traditional scenarios; from remote working capabilities, digitalisation and cloud infrastructure, to asset diversification
• Reviewing risk management models, to include new and emerging investment factors, such as rate of infections
• Accessibility to high quality, timely and granular, multi-asset data to navigate markets
• Delivery of transparent, frequent and flexible client and regulatory communications, outside of traditional reporting cycles
• The growing prominence of ESG investments
• Stress testing operational resilience
Dean Chisholm, Regional Head of Operations, Asia Pacific at Invesco Asset Management (Asia Pacific), says: “This pandemic has shown everyone the need for a strong work from home technology environment, which probably had varied across the industry prior to it happening. This does have the implication of whether we need physical BCP centres anymore, which has always been the traditional response. But now people are wondering just how useful they really are…”. “One thing that this pandemic did reinforce is the focus on clients and what they want, or you don’t have a product. We realised that some things we had been doing weren’t really that important, so we asked why we were continuing to do them. This type of questioning will continue quite heavily in the future, because we need to prioritise the client and what they want.”
Carsten Mumm, Chief Economist and Head of Capital Market Risk Analysis at Donner & Reuschel (Europe), says: “We have experienced an event that no one has ever experienced before. A global pandemic, global shutdown and a recession that was mainly man-made by politics, and this is why this is the ultimate test of resilience”. “One of the most important challenges during this market collapse was that we had a totally new fundamental input factor. No one had the development of the pandemic and the number of new infections as an input factor in their investment processes. We saw a completely unprecedented answer of fiscal and monetary politics, with huge rescue operations and liquidity injections, which also created a huge investment challenge.”
Molly Shannon, Member of the Executive Committee and Product Innovation Committee at Wellington Management (North America), says: “Data scientists tell us that 95% of the world’s data has been created in the past 5 years. And so we have essentially begun to restructure our workforce to harness all that data and help inform our investment decisions”. “…Increased trade volumes and lack of liquidity in a market crisis mean that, without technology and the right tools, there is a heightened risk that errors will be made, and client objectives will not be met...”.
Paul Tsironis, Head of Fund Statutory Reporting, IOOF Superannuation, IOOF Holdings (Asia Pacific): “In terms of the quality and timeliness of the data that we are reporting on, we are seeing a lot more regulator influence and request for data…”.“We are seeing quite a lot of these requests coming in and must answer them at a very granular level. Sometimes this information is not available at the push of a button...”.
Todd Needham, Director of Business at Loomis, Sayles & Company (North America), says: “As an investment firm, we exist on behalf of our clients. When instances like this arise, it is vital that we proactively reach out to our clients and share information with them; what we know, what we do not know and what we are trying to find out. This latest market event was no different – we mobilized quickly to get out in front of our clients to let them know that they weren’t alone, as well as what was going on with their portfolios.”
The prominence of ESG has grown during the pandemic, where ESG funds have shown resilience in fund flows. Bringing ESG products and portfolios into the core data set, instead of standalone strategies, delivers firms a complete view of assets across the investment lifecycle, from which they can better assess performance and exposure. This unified approach provides an optimal portfolio overview that also responds to the growing client demand for ESG data. At the same time, combining financial and ESG perspectives will help to enrich investment decisions, relative to overall allocations, a particularly important advantage in market events.
David Czupryna, Head of ESG Development, Candriam (Europe), says: “We have seen a widening of the spreads between ESG and non-ESG…There has been a lot of learning that has taken place through this crisis and it has validated our focus to continue…ESG in its many forms across our strategies”. “Having some form of ESG strategy will no longer be sufficient to gain alpha from this front. It will become about how you implement that data in your investment processes...”. “The ultimate litmus test for this will be the recovery, yes there will be one, and if ESG assets are able to continue their good relative performance…then we will see integration become more mainstream.”
Reflecting on the themes highlighted in the report, Marc Schröter, Head of Global Product Management at SimCorp, adds: “The pandemic has proved to be the ultimate test for financial organisations. People, processes and technology have been challenged as investment managers grapple with market volatility and more in-depth reporting requirements, all amid the limitations of a workforce largely working from home. The themes that emerged from the report point to the need for a simplified operating model, designed with the agility required to respond to any crisis. Central to such a model is a multi-asset front-to-back investment management platform, delivering one core and granular investment data source (the IBOR).
"Best of breed solutions that proliferate data silos, simply cannot support the speed and agility required for rapid asset diversification, liquidity management, timely exposure calculations, and other key investment functions across multiple asset classes. Additionally, digitalisation has to be high on the resilience agenda, not just for front-to-back processing, but also very importantly for proactive client communications.”