Jay Wolstenholme

About Jay Wolstenholme

The Under-Tow in the Data Lake

The word on the street is big data, data lakes leading to insight, uncovering the hidden opportunities within your massive trunks of data. All true but the majority of the buy side, asset managers, asset owners are still desperately struggling with getting their fundamental data in order.

Over 80% of AMs are $100billion AuM and below and 60% are $50 billion AuM and below, many of these AMs are progressing on solidifying their IBOR (Investment Book of Record) foundations. IBOR and the IBOR Services Matrix (see Inside the Matrix: The Future of IBOR) is still the architectural goal but not yet a necessity for all levels of the asset managers.

Many are not yet up to an IBOR level architecture and still dealing with more basic EDM (Enterprise Data Management) realities. A significant number of AMs are dealing with implementing solid data management and data governance across their portfolios and funds, don’t yet demand millisecond real-time but are operating in a near-time environment, that is operationally sound and cost sustainable.

Now the good news is that as AMs and increasingly institutional asset owners can take advantage of superior vendor solutions and bypass non-differentiating EDM issues. There is certainly little reason, in this day and age, for AMs to attempt to build their own EDM structures. Vendor products can provide core ETL (Extract Transform Load) processes and perform the core standardization, editing and cleansing of the data. Eventually this will all become utilities but for now it is still needs to be dealt with firm by firm.

Data lakes are phenomenal but before the majority of the buy side AMs and asset owners are primarily utilizing their data lakes they are feverishly executing the initial layers of data management and governance to stay market competitive.

Asset managers turn up the volume

There are two ways to make net profits – maintain a high margin and/or sell more volume at lower operating costs.

Asset managers find themselves in a low margin environment so the tactical and perhaps strategic path forward is to find volume at lower operating costs. The recent buy of Honest Dollar out of Austin, Texas by the Investment Management Division of Goldman Sachs is the continued direction of purchasing volume by buy side asset managers.

Overall asset managers are buying up robo advisors, not because they are overly threatened, but to expand the AMs existing client base. With automation AMs can add new clients at a relatively low operating cost and find an expanded demand side for their collective funds and ETFs. Look behind the scenes on any of the nascent robos and you’ll see all AMs product supply.

So the purchase of Honest Dollar is an early indicator that increased volume is in play. As Goldman stated, over 45 million Americans do not have access to employer-sponsored retirement plans. With targeting small businesses with less than 100 employees, utilizing automation and AM supplied ETFs and other funds a volume growing profit base is viable.

A major play of the automation of investment advice is increasing the total addressable market of investment consumers. The democratization of investing is being made a reality by the ready access to technology, but it must also be said that there is no correlation between democracy and actual wealth accumulation.

FIS, SunGard & the buy side

The acquisition of SunGard by FIS definitely helps expand FIS’s expansion into both Wealth Management and Asset Management. This part of the SunGard product line merges well with existing FIS banking products as banks continue to search for higher margin businesses and the expanding market in WM and the overall retirement space. In turn Asset Management provides the needed products to supply to the demand. As Defined Contribution retirement schemes continue to proliferate internationally, the asset managers will produce both active and passive products to fill investor demand. This means the growing WM and AM businesses need operational applications and services. And as banking products grow into WM and retail trading products offering asset management choices, FIS can meet the demand. Of course the issue will be the successful integration of SunGard into FIS but that is a much more complex topic for further research!

Hedge funds/ asset managers continue to find opportunity in capital markets and shadow banking

Citadel announcing this week that they will become a dealer of US treasuries becomes another proof point that hedge funds continue to take on sell-side market making activities filling a growing liquidity void in credit and loan products. Although Citadel has no desire to become a primary dealer at this point, it will hold substantial dealer inventory to meet client demands. Citadel’s broker dealer arm will handle this business as it already does with equities and FX. This continues the trend that as Western banks both in the US and Europe are required by regulators to reduce their balance sheets, hedge funds, asset managers will continue to full fill the supply side of this demand vacuum. We already see this as an increasing number of hedge funds are building portfolios of syndicated loans, private equity and real estate. Also a few hedge funds have started the securitization of mortgages and loans even to the point of securitizing and packaging “peer-to-peer” debt. The main point is as bank balance sheets shed high demanding RWC products, hedge funds and asset managers will move into supplying these products. Increased liquidity will be provided and an increase of revenues for hedge funds and performance returns for asset managers. But at the same time regulators will increasingly focus on these “shadow banking” activities, demanding hedge funds and asset managers to up their game managing market, credit and operational risk. This is all good but also means hedge funds and asset managers will need to continue to upgrade operations and systems in order to satisfy client and regulatory transparency demands. As one business shrinks another’s grows. For more on shrinking balance sheets see Oliver Wyman’s The Wholesale and Investment Banking Report.

Thoughts from IBM’s “World of Watson”

Last week was at the IBM’s World of Watson in NYC – IBM has opened up Watson through the Cloud forming an eco-system where application developers and partners utilizing open APIs can tap into Watson’s cognitive thinking algorithms.  IBM has decided to open the Watson platform to partners and developers for more rapid discoveries of real-applications and perhaps marketable applications. Of course many of the impressive applications targeted health care, mapping genomes, cancer research, synthetic drug pre-trials – some amazing stuff. In the area of finance I’m always a touch skeptical, investors have been trying to find the golden algorithms investment portfolios for centuries and not really convinced that Watson will do much better. However I was very impressed with some Private Equity software firm, Vantage Software in Boston, that was using Watson coupled with an accelerator big data analytics module application, AlchemyAPI out of Denver, to comb through social media for smoke signals about firms that were being tracked. For example a small firm is looking for 3 new analytical PhDs in polymer catalysts – a small signal that something might be popping with the young company. If an analyst is tracking say 250-500 start-ups, no way to track this manually. Of course stay tuned for Watson to show-up more in Wealth Management. Here’s some links to the main tent sessions:

Temenos acquiring Multifonds – the rapidly changing world of asset management

Temenos has announced that it is acquiring Multifonds. Multifonds, out of Luxembourg, is known for its IBOR portfolio and fund accounting system and its transfer agency application. Temenos, its original name back in the 1990’s was CTW (Conquer the World), is maybe doing exactly that, now adding significant Asset Management/ Fund Accounting functionality along with T24, its core banking platform and its current Portfolio Management offering, Triple A Plus. Now Temenos not only covers most of the banking world but also now can cover core asset management servicing. The sleepy asset management business is no more. With over $100 trillion of investable assets around the globe, investing is under siege, from “baby boomers” retiring and transferring wealth, defined contribution plans moving across the globe and millennium middle class wealth seeking investment. All this money needs asset managers and all the AMs need technology to manage assets (see The Continuing Quest for $100 Trillion AuM). The old adage, that the folks who supplied the picks and the shovels during the Gold Rush, did just fine and with a lot less risk and steady cash flows. Multiple vendors are expanding their offerings cross product, cross functions and combining services to serve ever larger audiences – universal banking, wealth management and asset management. Some supplying full BPO – fund administrators (SS&C acquiring DST, Advent), SEI spinning off its technology with Arcesium to serve asset managers. Sure many AMs are thinking, well if I outsource my technology why not my full operations? There are more and more administrators, custodians and vendors who can offer any investment service you might need. Just have clients and a good investment strategy and you are off to the gold fields.