Asset management, like any other industry, is experiencing rapid transformation as a result of rapid advances in technology particularly within middle and back office. Parth Sonara, product manager, speaks with TechBullion about the state of the industry. In this conversation, he discusses his journey into the finance industry, how modern technologies affect asset management, and the products he is developing.
Tell us about your career and transition from aerospace engineering (drone manufacturing) to finance. What made you choose asset management?
My dad has always had a strong influence on my attitude toward personal finances. He taught me the importance of investing in the stock market and reviewing investments continually to earn returns. I always knew I wanted to invest money, and in my final year of university, I had a choice between doing a masters in engineering and entering asset management, learning about capital markets, and at the same time, investing from a young age. An opportunity came for the latter to work and I ended up picking it.
From your perspective, how do modern technologies change the asset management and finance industries?
Asset management is a big world and includes making actual investment decisions (i.e., what’s termed front office) and the execution and reporting of those decisions (middle and back office). Traditionally, modern technology has really focused on creating gains in the investment decision process itself by leveraging greater amounts of machine learning and big data models to find investment opportunities. At the same time, due to the fee pressures facing the industry, technology is also being used to automate and scale non-core middle and back office tasks, so the asset manager can focus more on front office capabilities and delivering alpha.
How do you approach integrating new technological advancements into existing investment management systems to ensure they remain cutting-edge and efficient?
With any new advancement, the goal remains broadly the same: analyse the benefits, cross-check the technology against the current features you’re using, and balance the benefits against the costs of development and adoption. Some advancements are regulatory, such as the SWIFT ISO 20022 migration, which seeks to exchange payment messages across financial systems in a richer and a more structured format as compared to the ISO 150222 messages. In such an environment, investment management systems have no choice but to migrate to the new framework over time or risk losing market share to participants that advance their technology stack.
Other advancements can be more discretionary – such as devising mechanisms to exchange intelligent messages between investment systems, especially in the wake of T+1 settlement. While T+1 settlement is a regulation, how investment management systems exchange trade messages, automate responses, and resolve failures will drive the overall efficiency. Firms that maintain legacy processes could open themselves to increased settlement risk and resulting costs. While there’s often a development cost involved with such enhancements, in the long term, it results in less friction and reduces risk by having fewer manual touches, and thereby contributing to a more efficient middle and back office.
What are some of the major challenges you encounter when developing and implementing large-scale investment management platforms, and how do you overcome them?
Data exchange is a challenge. Our industry is fragmented in areas across front, middle, and back offices; as asset management firms have grown and acquired entities, the technology stack underpinning companies need to be joined retrospectively. The exchange of data within these entities and across other stakeholders upstream and downstream of the workflow requires data mapping and transformation exercises to ensure flow consistency across the lifecycle.
You’ve worked in both Mumbai and London, managing products and client services. With these diverse experiences, what can you say about the approaches to finances in different parts of the world? How globalized is the finance industry in terms of practices and approaches to asset management?
A lot of companies leverage the ‘follow-the-sun’ model, which is the ability for individuals across multiple time zones to be able to handle and divide work, ensuring a greater reach towards all corners of the world instead of working within the reduced overlap periods. While helpful, there is also a requirement to complement this with a local user base that allows the industry to customise the product and support for the end user, which is key in any industry. While clients appreciate leveraging a systematic and consistent approach, they do also like a customised touch in shaping the product to their requirements.
What emerging trends do you see shaping the asset management industry in the next few years, particularly in terms of investment strategies and product development?
It goes without saying that AI is the biggest change that the asset management industry (and other industries as well) will undergo. It has the potential to be transformative for the industry, as the models get better at understanding product requirements and will provide for huge scale, particularly for smaller and medium-sized companies that can ramp up such processes very quickly. With regard to product development, AI is already helping me in creating business requirement documents, presenting the testing and validation data in an aesthetic manner, and making internal/external reporting easier.
