Investment Operations

Operational Costs and Operating Models Top Buyside Priorities

Buyside Operations

Key findings from the 2024 edition of the Global InvestOps Report:

  • The top strategic priorities guiding buy-side technology and operations investments for 2024 are centered around improving operational efficiency and controlling operating costs. This marks a substantial shift from the 2023 report.
  • Over the next 12 months, buy-side firms are looking to process automation and AI, coupled with strategic outsourcing, to grow assets under management faster.
  • Improving data and operations support for multi-asset investment strategies remains a top priority to support strategic priorities for third consecutive year, and the most influential factor affecting buy-side firms’ investment strategy is increased pressure from competitors.
  • For the second year running, ESG investing was identified as the business area with the greatest opportunity for technological innovation in the next few years.
  • Nearly half (45%) of buy-side firms are considering exploring, or have already begun exploring, changes to their operating model. The primary reasons are a need to reduce operating costs and regulatory compliance complexity.

This month, Worldwide Business Research Insights (WBR Insights) unveiled the 2024 edition of its Global InvestOps Report, which provides insights into the challenges and priorities faced by buy-side institutions, including asset managers, pension funds and insurance companies, across North America, EMEA and APAC.

Against the backdrop of 2023, marked by persistent inflation, elevated geopolitical risk, and mounting pressure on operating profits, this year’s edition vividly illustrates how priorities within the investment engine room of buy-side firms can shift over the course of a single year.

Commissioned by SimCorp, the new report captures industry insights derived from responses provided by 200 buyside executives, including Chief Investment Officers, Chief Operating Officers, Directors of Operations, and similar roles.

According to the report, after a 10 percent decline in global assets under management (AUM) in 2022 [1], and a bumpy 2023, cost and efficiency are once again back on top of the agenda, with buy-side executives now ranking improving operational efficiency (54%) as their top strategic priority, guiding future investment in technology and services.

This marks a significant increase from last year’s report[2], where only 37 percent cited this goal, landing it in fifth position. Likewise, controlling operating costs now stands as the second highest priority, rising from 7th place in 2023. In contrast, last year’s top spot driving technology investments, which belonged to increasing competitiveness through technology innovation, now takes the backseat as the fifth highest priority (34%).

Strategic priorities guiding technology and operations investments for the buy side in 2024 compared to 2023

2024 Rank2023 Rank
Improving operational efficiency1 ↑5
Controlling operating costs2 ↑7
Improving customer experience3 ↓2
Accelerating time to market for new offerings44
Differentiating from competition through innovation5 ↓1
Keeping up with changing regulatory requirements6 ↓3
Decreasing operational risk7 ↓6
Recruiting, retaining, and upskilling talent88

Respondents were asked to select three strategic priorities are guiding their technology and operations investments for 2024.

“The emergence of operational efficiency and controlling operating costs as the top buy-side priorities guiding technology and operations investments, in stark contrast to just one year ago, demonstrates the evolving nature of the investment management industry,” said Christian Kromann, Chief Executive Officer of SimCorp. “In response to the shifting competitive and economic landscape, there is a pressing need for buy-side firms to leverage cutting-edge technology to optimize investment operations, and, ultimately, differentiate from their competitors.”

Tech innovation and outsourcing to support AUM growth

The substantial decrease in AUM in 2022, coupled with the challenging market conditions that ensued last year, has impacted the revenue of asset managers, prompting a widespread recognition of the necessity to reduce operating costs and elevate investment performance.

This trend is evident in several of the other findings from the 2024 Global InvestOps Report. Increased pressure from competitors is seen as the most significant factor (55%) influencing the investment strategies of respondents, followed by control of operating costs (51%).

Additionally, buy-side executives identify improving data and operations support for multi-asset investment strategies (43%) as the top planned technology and operations initiative to support their strategic priorities. This marks the third consecutive year where building a stronger foundation for multi-asset portfolios is a top priority. Having access to reliable data across all asset classes and geographies is a fundamental starting point for firms to effectively navigate change and seize investment opportunities.

When asked about their strategies for maintaining or growing AUM, the buy-side leaders highlighted two crucial factors: innovation in emerging tech (59.5%) such as process automation and AI and focusing on core activities by outsourcing standardized tasks (59.5%) to specialized service providers.

“While outsourcing will remain a core part of our operating strategy, AI adds a new dimension,” said Stephen Gouthro, Global Chief Operating Officer, Investment Solutions (OCIO), at Mercer. “We have deployed an internal AI tool to the entire staff in order to accelerate the process of identifying opportunities, as well as streamlining the way we work with a myriad of applications in research, risk, operational efficiency, etc. This will effectively free up time for our people so they can focus even more time on improving the client experience,” Gouthro added. “It is important that outsourcing partners invest in new technologies in order to drive down fees and provide us new capabilities. Therefore, both emerging technologies and outsourcing should be considered together,” he concluded.

For the second year in a row, ESG Investing takes center stage when looking at where the respondents see the greatest opportunity for technological innovation in the next few years (58%). Furthermore, ESG leads the growth trend from an asset allocation perspective, with 81 percent of the respondents planning to increase ESG investments in the short term.

Challenging the status quo

To survive and thrive in today’s fast-paced market, buy-side firms must challenge the status quo, and select the operating model that best aligns with their investment identity and preserves their competitive advantage.

A substantial 45 percent of respondents are actively considering alterations to their operating model, with some having already planned for implementation. The primary driving force behind this shift is the need to control operating costs, as underscored by 76 percent of respondents, followed by regulatory compliance complexity (61%).

“There is plenty to consider in 2024, but I believe that AI models are potentially a bright spot in the middle of all this. We find ourselves at a tipping point poised to introduce more automation and innovation,” said Marc Schröter, Chief Product Officer at SimCorp. “In a world clouded by uncertainty, buy-side institutions that can effectively leverage technology to affirm their identity and preserve their competitive edge will be best positioned to thrive in this rapidly evolving landscape,” he added.

To learn more about the findings and to access the full report, follow this link.