Over the last year the investment landscape has changed dramatically. Some hedge funds have delivered losses of over 40% over the last two years. These losses limit the ability to pick up any fees from investors in many cases. Some investment managers saw such losses that they opted to cease trading in 2022. Many of the others will be reviewing what technology investment strategies they should adopt in 2023, especially the investment into the right technology infrastructure.
The leading investors have suggested that more frequent portfolio changes are going to form part of many firms’ strategies in 2023 and beyond. The rise of fixed income is set to continue. Meanwhile, looking at the longer term, equity markets are forecast to give a stronger return in the next decade than fixed income. For others, alternative investment opportunities continue to offer the best returns.
But 2022 wasn’t bad for all investment managers. Big hedge funds have performed better than their smaller counterparts. Multi-strategy investment firms are set to take over equity long/short hedge funds in dominating money pools in the industry. And quant macro strategies returned to popularity in 2022.
Adopting the right technology investment strategy for your IT infrastructure is critical for investment managers. Investing in portfolio management systems in difficult times is one of a myriad of technology investment decisions that some need to make.
“Selecting a partner vendor that can support investment managers grow and scale is vital. This support can be established for asset classes and workflows. This is where Athena is unique in that it provides a cloud-native, multi-asset operating model which encompasses the full front to back value chain normally associated with legacy systems. This translates to rich functionality and product coverage on a platform which is future-proofed.” Raj Rathor, Head of Sales EMEA, Athena Systems.
Investing in Technology – an Alpha Strategy in 2023
Investment managers have shed substantial costs and implemented many new systems since the pandemic. But more importantly, the role of technology within investment has developed dramatically. In 2020 Bloomberg Professional Services published a report about how the responsibilities of the CTO and technology departments are growing (on the buy side).
Trends that were transforming the buy-side at the time included the challenges surrounding different types of new data and the data management of that data. Implementing the right cloud solutions, and automation.
Today those trends continue. As investment managers look for an alpha strategy within their adopted technology investment strategy. However, there remains a need for a continued balance in order to maintain operational resilience.
The number of solutions available to investment firms can seem daunting. The level of sophistication amongst some of the solutions can be hard to quantify at first glance. In turn increasing the need to strengthen the CTO’s role and technology departments.
Amundi has suggested that banks and asset managers are spending at least €1.6 billion annually on replacing their technology in the next few years. Which accentuates the size of the task at hand.
“What remains constant is the need for a clear cloud strategy which can lower costs, increase operational resilience, and ensure that data is safe. And not leaving cloud at the end but building upon cloud as a platform for further technology investments,” Raj Rathor, Head of Sales EMEA, Athena Systems
The Trouble with the Cloud
The growth of the cloud providers has been constant. However, in 2022 both Microsoft’s Azure as well as Amazon Web Services (AWS) failed to replicate the growth numbers of previous years. In fact, a CTO from a bank was recently quoted as saying how the biggest cloud companies had not moved fast enough to reduce fixed charges. Charges for things like storage and computing. This has led to many of the larger financial institutions adopting a hybrid strategy.
The use cases and speed of deployment that come with cloud solutions far outweighs anything a legacy system is capable of today. But customers of cloud providers still need a good overview of the various solutions available today. An overview of the biggest solutions providers, and the more niche solutions providers.
AWS, for instance, has been offering considerable incentives for its customers to channel more of their cloud business to its data centres. This is pushing customers to lock into long term deals without considering better, cheaper, or more strategic alternative suppliers. Microsoft, like AWS, is also trying to lock in customers for longer.
Worst of all when you want to switch cloud providers, there are high switching costs too. Costs that can be avoided by ensuring the correct cloud provider from the onset of a technology investment strategy.
Elsewhere there has been criticism of consumption-based cloud offerings from AWS, Microsoft and others. During recessions these revenue models slow significantly, showing a lack of appetite for the big cloud providers amongst customers.
Additionally, the threat of cyber attacks isn’t quite as clear cut as one may think, even with the resources of the big tech firms. There is actually a shared responsibility between the cloud service provider and the customer in the case of most cloud providers. A shared responsibility that needs to form part of an investment manager’s strategy for technology investment. A cloud solution provider needs to be available to address the needs of an investment manager, and offer a true alternative to other solutions. Like advanced levels of security from cyber attacks.
“Most legacy providers are shifting their solutions into the cloud via AWS/Azure. This could mean costly re-implementation of an already expensive operating model. This is why cloud native solutions which are built and deployed in the cloud are vital in firms optimizing their operating model for 2023 and beyond,” Raj Rathor, Head of Sales EMEA, Athena Systems.
Is True Cloud the Alternative?
The hybrid approach is what the majority of larger financial institutions have been considering. It’s an alternative because it means that there are high levels of tech support available from some of the alternative cloud solution providers on the market. And it doesn’t tie the firm down to one solution.
Turbulence in the markets needs an alternative provider that has in-depth experience working with investment firms. Offering agility and transparency to the entire technology infrastructure. This can help in creating a proactive approach to addressing vulnerabilities. Not to mention the associated cyber risks this type of provider can help with.
Investment managers are not completely aware of how the cloud can help them, yet. Especially how it can help them with data. Many firms are still using legacy systems, which compliment inadequate data processes. They are not addressing data at the organizational level.
In order to best use the data available to improve front-to-back systems, migrations to new solutions are only part of the answer. The transformation needs an investment manager to change the way they translate and interpret the data.
Allowing the investment manager to get more value from the data available. Subsequently helping increase and deliver transparency and alpha. Solutions are available to address the need to better work with data using cloud solutions.
How Athena can optimize your cloud operating model
Cybersecurity threats to trading businesses are nothing new. Athena Systems offers the leading cybersecurity standards available today within their service offering. The company recently received further awards to recognize its commitment to cybersecurity. Investment managers who adopt cyber risk quantification can justify security investments in their technology investment strategy. Risk mitigation in every area of the firm can be made more accessible by adopting a system like Athena.
“Athena can really push the status quo within the space in being a cloud native, open ended, true full front to back solution for buy-side firms,” shared Raj Rathor, Head of Sales EMEA, Athena Systems
Athena Systems can support investment managers and other capital market firms with a complete front-office and back-office functionality. This ensures that trading and portfolio management is operationally efficient. And takes place on a state-of-the-art technology stack offering a flexible and integrated platform.
As part of a technology investment strategy investment managers can improve their access to key data by improving the technology infrastructure within their firms. Including portfolio analytics, risk (Monte Carlo, historical or parametric), P&L, compliance, order management & full fund/partnership. Secured from cyber threats to the highest industry standards. Featuring on the fly API integration.
Optimizing your technology strategy with Athena Cloud-native solution
Operational resilience will continue to be important in the future. Investment managers have the opportunity to leverage the best technologies as part of a technology investment strategy.
The ability to deploy cloud-native solutions can enhance the ability for investment managers to understand and highlight key data points front-to-back. In turn leading to optimizations such as lower costs or a more agile infrastructure to deploy changes. Having the ability to be agile whilst addressing changing market conditions, regulations, and ever more sophisticated cyber threats is the best way to ensure operational resilience in the future .
Cybersecurity threats to trading businesses are nothing new. With the threats evolving in significance and scope in recent time, Athena Systems’ state-of-the-art OMS/PMS solution offers the leading cybersecurity standards available today within its service offering.
Investment managers who adopt cyber risk quantification in their technology investment strategy have justified their security investments. The deployed resources have been proven to deliver the security needed in a financial services industry where trust is key. The mitigation of risk and increased focus on operational resilience across the firm can be one step closer by adopting a system like Athena.
Not Just Another Technology Investment Strategy
Using technology in an agile way is becoming a necessity in order to address today’s turbulent and shifting economic and financial landscape. Increased transparency and challenging market conditions have made finding alpha more elusive without the support of the right technology strategy. The solutions available today can increase competitiveness. The best state-of-the-art technology solutions are built bespoke for the customer but from a flexible base which can be customized, with the customer’s processes at the focus. Focusing on operational resilience so that users of Athena Spark can focus on alpha.
There are many advantages of working with the larger cloud solutions providers today. Especially if you are able to spend time understanding their processes and how they work. But most importantly, if you are able to factor in and grow the capability within your organization to address the shared responsibilities that come with that technology investment strategy.
It is often both important and more efficient in the long term to choose a cloud-native solution. A solution which is built and deployed in the cloud. This approach will help to avoid expensive re-implementation of a further cloud provider in the future.
Focusing on resilience will continue to be important for all investment managers in 2023. Ensuring the best approach is all about finding a solution that complements your business activity, and not one where you have to accommodate the cloud provider. At Athena Systems our approach is to ensure a modular system that can offer support front-to-back.