Asset managers are feeling the squeeze of tighter margins. Net revenue yield has declined 1.5% per year over the past four years, which has prompted asset managers to look for alternative ways to cut operations costs. At the same time, they are moving into costlier alternative asset classes and trying to increase their business differentiators to meet client demand.
As asset managers deploy various strategies to address these challenges, a recent study conducted by Boston Consulting Group (BCG) found a clear consensus across the industry – strategic vendor partnerships are the most effective method for achieving operational cost savings at scale.
BCG looked at data from large, insurance-focused asset managers and compared two groups. One group allocated more than 20% of their operations spend to a strategic partnership and the other group maintained less than 20%.
The study found the group that prioritized partnerships saw 4% higher AUM growth, reduced the operations cost in spend-to-AUM by 0.7 basis points, and had 27% percent lower overall business expense increases compared to firms who don’t use a strategic partnership for their post-trade investment operations.
Insurers and asset managers benefit from strategic partnerships by leveraging economies of scale and optimized processes to reduce costs. Strategic partnerships also contribute to scale by creating efficiencies and providing expertise.
Using economies of scale, asset managers benefit from vendors who pool the servicing of multiple clients’ assets into one infrastructure. Vendors create process efficiencies for their clients by processing large quantities of data. As this data pool grows larger, the data quality improves. For SaaS vendors, as their client bases and data pools increase, this creates a network effect that benefits all users. Streamlining processes, solving for challenges, and learning best practices for some clients leads to system improvements for all and translates into cost savings for asset managers.
Vendors that serve as strategic partners work closely with their clients to develop and fine-tune processes based on industry standards and expertise. Through years of experience, these vendors offer proven, optimized processes for their clients. Firms developing solutions on their own are left to figure out and develop these standards on their own, which takes considerable time and resources.
As companies grow, their data, accounting, and reporting needs intensify. This means that teams need to take on more work than they’d normally be asked to do, which is often manual and time-consuming. Strategic partners automate key aspects of post-trade operations, including accounting and reporting, creating efficiencies and providing a scalable solution that changes how teams do business by taking on the heavy lifting normally associated with these processes. This frees ups personnel to focus on more meaningful tasks that enable business growth and client satisfaction.
Insurers and asset managers are adding new asset classes to their portfolios that require additional expertise beyond what their current team may possess. Rather than go out and find experts to add to their team, a strategic partner’s experts serve as an extension of their clients’ team. They understand best practices, data and regulatory requirements, and more, and have unique insight into how other leading firms are handling similar investment types. This gives asset managers more confidence to move into alternative investments and new strategies with a solution and servicing team ready to support them.
Clearwater partners with its clients to provide best-in-class investment data management, accounting, and reporting that’s backed by a dedicated team of experts. We enable our clients to grow by streamlining their processes, effectively managing complex investment data, and providing full asset class coverage.
A strategic partnership with Clearwater means your firm is aligned with a system and processes developed by industry experts that is continually enhanced and improved to stay ahead of what’s next in the market. Our innovative product roadmap is shaped by client feedback, meaning we’re making improvements based on evolving industry needs and making those improvements available to all clients with no disruption to your service.
From regulatory changes and accounting updates to changing strategies and emerging alternative asset classes, we have experts on our team that become part of your team to help you navigate the complex world of investing.
See for yourself what this partnership could look like for your firm. Schedule a meeting with one of our experts today.