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Unlike the traders and dealmakers of Wall Street, my part of the industry —
Processing Content
Structural shifts, brought about by client and product advancements and catalyzed by rapidly evolving technology, require great dynamism from many constituencies. And perhaps nowhere more than in the business of asset servicing.
We must shed the “utility” label with which we have been saddled for so long and lean into this moment, embracing our role at the heart of the financial system. To this end, there are four themes to which we are paying particularly close attention.
From everyday micro-innovations to large-scale programmatic deployments, the early proof points are painting a clear path: the workforce of the future is hybrid. This means combining high-value human work and oversight alongside a new group of “digital employees” who are charged with learning, performing and improving baseline processing. BNY already has more than 100 digital employees performing tasks that range from generating autonomous code to validating payment instructions. Embracing a digital workforce is a clear sign that AI has moved from experimentation to industrialization.
Although we have been talking about digital assets and
Not many people outside of asset servicing understand or even question the plumbing that makes markets run smoothly. The task facing every institution now is how to connect the new technology and legacy systems that have been in place for decades. We must retool the traditional pathways of custody, investor solutions, fund services, clearing, and so on, to meet our clients’ evolving needs and deliver with efficiency, transparency and resiliency across both worlds. The convergence of traditional and digital ecosystems is essential to drive the next phase of evolution in global financial markets.
If the digital revolution speaks to how we invest, what we invest in is also changing. The rapid growth in alternatives, and specifically private markets, is driving further complexity and product innovation.
As both institutional and high net worth investors allocate more to private assets, this requires new valuation processes and data requirements. Asset managers and investors increasingly want to see and manage a total portfolio view of their investments — public and private markets, across all asset classes, in a “single pane of glass.”
Separately, the lack of standardization and transparency in private markets means more manual processes and bespoke technology — creating challenges for asset managers and fund investors, but opportunities for those asset service providers that can offer outsourced solutions that are truly integrated. And, most importantly, investors increasingly need more sophisticated liquidity and collateral management tools to plan for and successfully navigate through stressed market conditions.
The demise of traditional pension plans in favor of defined contribution options, the generational transfer of wealth, the increasing trend of break-away RIAs as well as more recent executive orders promoting the expansion of investment options into 401ks, are all driving the importance of retail channels. For the first time, individual investors are demanding the same access to and personalization of investment options once only afforded to large institutional players.
Think about the dozens of recently announced asset management partnerships launching new products that bridge traditional and alternative assets for retail investors. Or take the recent SEC approval to offer an ETF sleeve as part of a mutual fund wrapper. And finally, don’t forget managed accounts, vehicles that combine several strategies or investments under one umbrella and offer tax optimization or greater personalization at scale, even to smaller investors.
Our ability to support these products, as well as provide access to retail distribution channels, has never been more critical.
It is time for asset servicers to transcend our traditional roles and rules to radically reimagine what we do and define the future of finance.