Buy-side firms have faced mounting challenges in recent years that affect operational performance. Margins are under pressure amid intense market competition, a regulatory deluge and fast-moving technological innovation. Legacy infrastructure built for the pre-internet era is increasingly inadequate to provide optimal client service.
In this challenging business environment, the buy-side faces significant pressure to reduce costs for two main reasons. The first is that it is costly to comply with the growing regulatory burden. The second is that passive investment continues to gain popularity at the expense of actively managed funds, which is affecting the bottom lines of major active managers. By early 2021, there was roughly US$11 trillion invested in index funds. In the past decade US$2 trillion has flowed into passive equity funds, while US$1.5 trillion has exited active ones. BlackRock predicts that global ETF assets could reach US$12 trillion by the end of 2023.
In response, buy-side firms have turned to technological upgrades and even overhauls to enhance their competitive edge. Automation, artificial intelligence (AI), machine learning and cloud-based infrastructure all serve to reduce costs, streamline operations, boost resilience, and optimize client service. Outsourcing efforts have increased, especially for middle- and back-office functions.
For this report, Kapronasia conducted both primary and secondary research in Asia to obtain the most relevant insights from the industry around operational challenges faced by buy-side institutions in the pandemic and what they expect in the future.
Secondary Research: Sources included but were not limited to, market intelligence reports and studies by industry experts and professional services networks, white papers, educational materials, media articles, and marketing collateral.
Primary Research: Interviews were secured from relevant players across the ecosystem, including financial institutions and industry experts.