Business-driven software an emerging trend in asset management

16 February 2021 4 min. read
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Tech-savvy asset management professionals have started developing their own software solutions – boosting personalisation but also increasing risk. A study by financial services consultancy Sionic sheds light on the trade-offs.

Sionic conducted a survey and held interviews with asset managers on the matter, finding that more than 90% choose to build software solutions themselves instead of relying on the IT department. Indeed, coding languages are easier than ever to use (e.g. low coding), while ranks of young professionals are now comfortable with programming, cloud technology and software applications.

With these tools in hand, there is plenty of motivation to take control. “Some of this is down to lack of functionality in existing applications and frustration with the speed of centralised software development,” explained Clare Vincent-Silk, a UK-based partner at Sionic and expert in asset management.

Business-driven software an emerging trend in asset managementThat being said, there is more than just impatience at play here. “The main reason is to enable more sophisticated data analysis and to allow investment teams to add their “secret sauce” to the investment decision making and portfolio construction process,” she added. 

Not surprisingly, investment desks are the epicentre of this “business-developed IT,” although traces are also emerging across reporting, finance and operations teams. User-friendly tools such as programming language Python and data visualisation software PowerBI are increasingly popular across these firms.

No doubt, the trend reflects admirable initiative, and knowledge of current trends. Data-driven asset management is widely acknowledged as the way of the future, and many in the industry are striving to increase the role of technology in this space. The problem is that business-developed IT in its current form opens up a Pandora’s box of risks.

Employees acting on their own accord risk using vulnerable software; incorrect or unlicensed data sources; and even weak, untested or flawed codes and algorithms that could produce inaccurate results or create security vulnerabilities. Topping this off, regulators are increasingly interested in testing tech maturity, throwing up compliance risks too.

All things considered, most firms in Sionic’s survey only “tolerate” business-developed IT, but don’t support it. At the same time, businesses can’t actively discourage this trend – with smart asset management gaining more ground by the day. The solution here is to develop an effective risk management framework that can support business-developed IT.

Managing risk

Many have a rudimentary structure in place – 80% revealed that employees need clearance from the IT department before using development tools. But there is still work to be done, with only 10% claiming the ability to effectively support business-developed IT. For Vincent-Silk, a focus on adherence is the next step forward.

“Culture plays a large part in this, with organisational awareness and buy-in to the controls crucial to the success of the risk management framework. This will be achieved by educating capable employees on good practice and behaviours, as well as building a strong culture supporting internally developed software.”

Operational risk teams will also play a key role, “to ensure there is robust management of the risks that business-developed IT poses, as firms increasingly look to the use of technology to improve investment performance for their clients and enhance their competitive edge.”

Future of IT

With a robust framework and a risk-aware culture, business-developed IT could well become the future of asset management. A third of survey respondents are already actively encouraging this shift. The question remains: What of the IT department?

Nearly 30% of respondents see IT becoming more decentralised. Not to say that centralised IT teams will become irrelevant, they will just take on an entirely new avatar – an “oversight and mentoring role” per the analysis. These teams will focus on how more advanced tech – data science and development – can support the business and take it forward, while also keeping business-developed IT in check.