Institutional asset allocators lack proper systems to manage complex portfolios, finds survey

Institutional asset allocators face an increasingly complex investment landscape, and new research from fintech firm, Milestone Group shows that often they do not have the tools to efficiently implement and manage those strategies, with many critical functions relying on spreadsheets and ageing technologies. 

Milestone Group’s Asset Allocation Technology Survey 2020 surveyed 47 institutional asset allocators, with AUMs ranging between USD500 million and USD25 billion, on the current and future technology requirements of institutional asset allocators, both asset owners and investment managers.

The pressure to deliver better outcomes has led asset allocators to design and implement more complicated investment strategies, with 82 per cent of respondents reporting that investment strategies are becoming more or much more complex. This means portfolios are becoming more challenging to monitor, manage and transact. 

While technology is identified as being crucial to achieving investment objectives, fragmented processes remain a challenge with 50 per cent of firms saying they use four or more systems for monitoring portfolio exposures alone. Firms were found to be using as many as 13 different systems/providers across all investment functions. Half of all respondents indicated that their current technology profile is comprised of multiple legacy systems and spreadsheets, while one-quarter of respondents still use spreadsheets to manage critical functions such as monitoring portfolio exposures.

The research shows that a clear industry consensus on the best type of technology solution is yet to arrive, but when asked what their preferred technology strategy is, a plurality of respondents (38 per cent) either currently have, or would prefer to have a ‘built for purpose institutional asset allocation investment management platform’.

Randal McGathey, vice president Asset Allocation Solutions at Milestone Group says: “The impact of asset allocation on outcomes is well recognised and institutional allocators continue to be both propelled and constrained by the complexity of their work. The report finds that current state technology is highly fragmented across the front and middle offices.  We know that investment strategies will advance and complexity and demand for scale will increase still further. Reading between the lines, we see evidence of an acceleration in the need for market solutions that strengthen and standardise the underlying platform while supporting product innovation and bespoke investment processes.”