An FGX blog contributed by Thomas Eikrem, Managing Director, Europe, Fencore
In November 2024 FundGuard, Alpha FMC and Fencore arranged a Copenhagen roundtable to address Nordic investment management opportunities and challenges in an age of hyperinnovation. Opinions were plentiful, diverse and – maybe – a tad cautious. The Nordics do have the reputation of academic conservatism when it comes to evolution and business development. Decisions are not taken lightly. Options are debated, and transparency and clarity are part of the DNA of the investment management community. By doing so, they mostly have steered clear of controversy and scandalous events.
At a recent conference my co-panellist said that the main difference between American investment managers and their European counterparties is that the US innovate and monetise rather than measure and regulate. If this indeed is a culture issue, it might explain why American technology and service providers are often more challenged to establish a significant European market presence – and vice versa.
That said, the investment management trends we saw in 2024 and our predictions for 2025 are truly international. The world of financial markets is getting increasingly global, and modern technology is the main reason for that.
The Next-Generation Operating Model:
The best-of-breed versus integrated solution battle fizzled out some years ago, killed by easier integration, data exchange and interoperability. Even the most fundamentalist “one solution” merchants established partnerships and ecosystems. Although, from time to time, the revised value proposition sounds a bit like Marxism, of the Groucho Marx variant: “These are my values, and if you don’t like them, I have others.”
However, considerations regarding next-generation target operating models go beyond the system landscape. Other contemplations are data operating models and organisational structures, including off- and nearshoring, centres of excellence, component-based outsourcing and constant, incremental change and refinement.
SaaS, Cloud – and the Strange Case of Cloud Washing:
Most protagonists agree that the cloud trend is irreversible. SaaS is the future, and lower costs, and increased reliability, consistency, scalability and accessibility tell a strong story. The SaaS journey, however, is a complex one, especially if your systems are based on legacy technology and code. The very clever, catchy but ultimately nonsensical expression “Reborn in the Cloud” remains my third favourite oxymoron, after “We do not expect any emergencies” and “Thanks God, I am an atheist.” Ideally you want your future solutions to be cloud agnostic, multi- and single tenant and no/low code. And, unless you are cloud-native you will not achieve that, raising the question if a future target operating model should be data centric, allowing firms to swap out systems when they reach the end of their technological lifespan, without fundamentally changing the data operating model.
The Rise of Alternative Investments:
The quest for stable returns and alpha continues, and hence asset managers and -owners’ private markets asset allocation is on the rise. Private and public systems have historically been segregated, simply due to the nature of the investments: valuation, availability of data, calculation methodology, investment lifecycle and liquidity are some of the reasons for the separation. However, with increased interest in private markets, the democratisation of alternative investments and fund launches, there is a clear requirement to aggregate across all asset classes. Regulation, especially around publicly listed funds and investment- and fund accounting, is further adding complexity and will decide which solutions are fit for purpose in the future.
ESG Redux:
Sustainability remains on everyone’s agenda, but it is changing. The Nordic investment community, like everyone else, headed full steam ahead a few years back, without a thought-through strategy and the necessary anchoring, often making Communication or HR responsible for the initiatives. Predictably, this backfired. But, unlike its American peers, the criticism was led by veterans within sustainable, responsible and ethical investments. Regulation changed. Mistakes were publicly acknowledged. This was swiftly followed by a high degree of self-regulation, with firm living up to (or going beyond) regulatory guidelines, often well ahead of the deadlines. With the accountability now being back with operations and investments, based on science and finance, discussions now evolve around more sophisticated concepts like ESG book-of-records, sustainability adjusted benchmarks, risk management and performance attribution.
The Tech-Enabled Investment Manager:
Historically speaking, Nordic system selections have been operationally focused, often with key selection criteria around regulation, compliance and investment accounting. However, with the concept of IBOR (Investment Book of Record) evolving, and investment operations becoming increasingly more tech-savvy, the traditional borders between Front and Back Office systems are changing. Twenty years ago IBOR became all the rage, and every solution provider claimed ownership. The value of investment accounting data, however, across all processes and the entire investment lifecycle, is today undisputed. As the industry continues to evolve, and we are moving towards a T+0 operating model and a more globalised investment management setting, we need to look “Beyond IBOR”, toward a real-time, multi-book position keeping framework, distributed on-demand to the various functions. Interoperability will be the key for getting this to fully support the modern investment manager.
On Component-Based Outsourcing and Ownership:
Outsourcing, at least in its traditional, binary sense, i.e. Middle- and Back Office outsourcing, is not dominant in the Nordics. On the contrary, most core systems remain on-prem. However, the landscape is changing. No longer a binary solution, component-based outsourcing of all aspects of the operating model represents an interesting proposition and doesn’t necessarily mean giving up ownership, control or IP. Furthermore, numerous software providers are offering a myriad of services options, from SaaS to BPaaS. The challenge is of course how to standardise processes that do not add value and optimise those that do, whilst not losing your competitive advantage. Discussed at length at the roundtable, opinions are divided, and – as always – there’s more than one way to skin a cat.
The November 2024 inaugural Copenhagen roundtable was our first of its kind. Now as we move full steam into our 2025 series, we are older, hopefully wiser, with new ideas, suggestions and reflections. To that end, we look forward to reconnecting with participants old and new as the conversation continues, and we will soon announce details for our March 2025 event.
To get involved, visit fundguard.com/fgx to register your interest. We’ll see you soon.
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