As the world continues to grapple with the impact of the COVID-19 pandemic, investment managers are facing an intensification of market and economic headwinds.
From margin compression to emerging regulations, managers are still expected to innovate and outperform while navigating levels of market volatility not seen since the 2008 financial crisis. Moreover, we have yet to see the true impact of the COVID-19 pandemic on the investment management industry.
Whatever comes, we can expect that managers that hang on to legacy operational principles will likely face greater risks. The industry as a whole is shifting toward the cloud, and firms that do not adapt will face obstacles to business growth. The pandemic has quickly shown us the very real and practical benefits of adopting cloud solutions, particularly resiliency. And not only does the cloud streamline many of the day-to-day operational issues, but it also addresses long-term concerns such as business growth and innovation.
In a study published in 2020, 37% of respondents cited the cloud as the most important emerging technology to maintain competitiveness over the next five years. For managers that have yet to embark on the journey toward cloud adoption, the time has come to embrace cloud-based investment management solutions as part of business strategy.
How do capabilities inherent in cloud solutions unlock deep strategic business value? Take innovation and emerging technologies, for example. To remain competitive, investment managers must continually construct new offerings and find additional sources of alpha. Here, the value of data cannot be understated; the vast data volume generated over the years provide the potential for new investment insights. Turning data into insights requires storage and analytics capabilities. Cloud boasts the ability to store and aggregate large amounts and different sources of data in combination with powerful technologies such as machine learning and natural language processing to leverage that data.
Firms that build and maintain their own software operations and data solutions are often distracted by something that can be done more efficiently by others. Adopting a cloud-based, software-as-a-service model enables them to remove this distraction and focus instead on managing investments. The cost of maintaining internal infrastructure is eliminated, and in the cloud, firms pay only for the capacity they use.
Eliminating the administrative burden, along with the performance and scale the cloud offers, can result in increased productivity and enables firms to develop and introduce more innovative solutions for clients. So the upfront investment for migrating to the cloud can yield long-term payoffs not only in cost and operational efficiency but also in better investment decisions.
The cost efficiencies gained by retiring on-premises systems can be further amplified by one of the cloud's most compelling benefits: resiliency. Organizations using cloud solutions or accustomed to conducting operations off-site before the COVID-19 pandemic, for example, were often better positioned for a less disruptive transition. Resiliency is crucial to maintaining business continuity in the face of disruptions such as a sudden and sharp rise in capacity needs. Cloud design can accommodate significant fluctuations in processing or data volumes and are built to autonomously respond to and recover from failures.
Even with systems designed for resilient outcomes, cybercriminals and associated security breaches continue to present significant risks. In fact, the concerns surrounding cloud security have been a key reason for delayed adoption at many firms. As with system and network infrastructure, cloud providers continually make investments in security, with constant monitoring and ever-evolving threat-detection capabilities. This enables asset managers to focus on the needs of their clients, rather than investing in costly internal security infrastructure and maintenance. Likewise, it helps solve the difficulty of sourcing top cybersecurity talent.
There is little doubt that asset managers will continue to navigate market and economic instability in addition to the unforeseen challenges posed by the pandemic. What is clear, though, is that we won't return to the way things were; adopting agile and resilient technology is imperative in the new normal.
Firms must not only recognize the cloud's catalyzing potential for growth and transformation, but they must now take steps toward adoption. As economies restart and companies try to move ahead in uncertain times, the need for cloud-based solutions is more urgent than ever. Managers should be asking themselves: If not now, when?
Spiros Giannaros is president of Charles River Development and head of platform strategies at State Street Corp., Boston. This content represents the views of the author. It was submitted and edited under Pensions & Investments guidelines but is not a product of P&I's editorial team.