The investment management landscape is undergoing a transformative shift. Structural market changes, the rapid adoption of digital technologies, evolving investor behavior, and shifting perceptions of performance and costs are fundamentally reshaping the buy-side ecosystem. In this dynamic environment, forward-thinking firms are exploring innovative strategies to outperform their peers by leveraging focused business models, operational agility, and disciplined cost management, particularly in core investment and risk functions.
This blog delves into key trends and challenges reshaping portfolio and risk management, highlighting how firms can adapt to stay competitive.
Convergence in the Investment Technology Value Chain
The investment value chain is evolving, influenced by regulatory pressures, technological advancements, and the digital revolution. One key trend is the convergence of technologies across different parts of the investment process.
Portfolio Risk Models and Analytics
To enhance investment decisions, firms are increasingly adopting technology that delivers a consistent framework for multi-asset class analytics across the front and middle office. An overwhelming majority of firms (71%) prioritize portfolio risk models and analytics that are interactive, real-time, and enterprise-wide. This demand underscores the need for a unified approach to managing risk and performance across diverse asset classes.
Portfolio Construction Technology
The shift in investment strategies is driving convergence in portfolio construction tools, with 38% of firms seeking solutions that support optimization across multiple asset classes and strategies. Emerging technologies such as artificial intelligence (AI) and big data are well-suited to meet these demands. These tools enable investment firms to construct and optimize portfolios with greater precision, flexibility, and speed, fostering a more responsive investment approach in a rapidly changing market.
Technologies Driving Change in Portfolio and Risk Functions
Emerging technologies are revolutionizing how firms manage portfolio and risk functions, enabling them to make faster, more informed decisions at a lower cost.
Artificial Intelligence and Big Data
AI and big data are poised to be the most significant disruptors over the next five years, with 72% and 64% of firms, respectively, recognizing their transformative potential. The synergy between AI and big data is undeniable—AI algorithms thrive on the quality and scope of data, while big data insights remain untapped without AI’s analytical capabilities. Together, these technologies are helping firms uncover hidden insights, automate processes, and enhance decision-making.
High-Performance Technology
High performance (52%) is another critical focus. Investment firms are rethinking traditional, monolithic architectures in favor of more agile and cloud-based systems that deliver high-speed reporting, data processing, and analytics. Cloud strategies are increasingly being adopted to address the demand for performance, flexibility, and scalability.
Challenges Facing Investment Firms
Despite significant growth in the global investment management industry, firms face a host of challenges that threaten their ability to maintain a competitive edge.
Regulatory Compliance
Regulatory pressures remain a top concern, with 47% of firms identifying this as a primary challenge. The implementation of regulations such as MiFID II has imposed stringent requirements on the industry, and new regulatory rulings are expected to further complicate compliance efforts in the years ahead.
Investment Performance
In an intensely competitive market, generating alpha consistently is a major hurdle, with 33% of firms citing performance as a key challenge. Factors such as low volatility and political uncertainties, including the ongoing effects of Brexit, contribute to this difficulty. Firms must develop innovative strategies and tools to achieve reliable performance gains.
The Business Case for Modernizing Technology
Modern technology is not just a luxury—it is a necessity for investment firms seeking to drive better decisions and streamline operations.
Cost Efficiency and Legacy System Challenges
With operational costs under pressure, firms are prioritizing cost-saving technologies that mitigate margin compression (26%). Legacy risk management systems, which demand significant resources to maintain, are being replaced by next-generation platforms that offer more value at lower costs. These advanced systems enable firms to redirect resources toward strategic initiatives rather than operational maintenance.
Unlocking Value with Big Data
The integration of big data and other emerging technologies presents compelling opportunities for firms to gain strategic insights and generate alpha. Advanced analytics allow firms to better exploit information, providing a competitive edge in an increasingly data-driven industry.
Adapting to Thrive
Investment management firms that embrace change and innovation will be well-positioned to thrive in this evolving landscape. By adopting cutting-edge technologies, enhancing operational agility, and staying ahead of regulatory requirements, firms can not only navigate current challenges but also uncover new opportunities for growth and success.
The future belongs to those who adapt. For investment managers, now is the time to rethink strategies, modernize operations, and position themselves at the forefront of this industry transformation.
Transform Your Approach with Connected Risk
If your firm is ready to embrace the future of investment and risk management, Connected Risk can help you get there. Our platform offers powerful tools for managing portfolio and risk functions, leveraging advanced analytics, real-time insights, and a robust framework designed to optimize decision-making across asset classes and strategies.
With features like cloud-based flexibility, seamless integration, and comprehensive compliance capabilities, Connected Risk empowers firms to overcome regulatory challenges, reduce costs, and unlock new opportunities for alpha generation.
Take the first step toward a smarter, more agile investment future. Contact us today to schedule a demo of Connected Risk and discover how we can help you transform your operations and stay ahead in a rapidly evolving industry.
