A Collective Journey to Cloud in Asset Management

This blog was originally published as part of Citisoft’s Outlook 2023

One of the major challenges to understanding the cloud is that there is no standardized approach to cloud transformation. While the industry may collectively agree that the move to the cloud is a foregone conclusion, alignment of solutions architectures to an asset manager’s strategic priorities and internal architecture is still being defined.

How this evolution will play out is up for debate, but there’s no doubt it has been driving agendas in 2023 as cloud promises a future where asset managers are able to scale quickly with limitless data storage and compute power, lower cost of maintenance, and the flexibility of cloud architecture to enable development and application interoperability.

Asset managers have been hesitant to move installed or in-house applications to cloud providers for decades. Reasons for this are complex and multi-layered—security concerns, stickiness of applications, cost consciousness, and the lack of cloud applications in the solutions market. Many of those concerns have dissipated in recent years as cloud has proven its value and reliability. However, there has perhaps been no greater catalyst driving cloud momentum than the push amongst solutions providers.

Over the past several years, nearly every major software vendor or service provider in our space has been marketing their cloud capabilities or plans to incorporate cloud into their offering. When asset managers undergo a search and selection, cloud is now a key part of their decision criteria. With so little clarity and standardization around what cloud means for technology and operations, this is a difficult process—and one that is evolving alongside technology maturity.

Discerning cloud-native, cloud capable, and the gray area in between

When it comes to the solutions landscape, new technology is nearly always built on a cloud code base. The reasons for this are simple: 1) the cost and time involved in developing a cloud application is a mere fraction of an installed application, and 2) the industry is inexorably moving in this direction. A cloud native solution can deliver on the full promise of cloud: lower fixed costs, greater computing power and scalability, improved application interoperability, better data accessibility, enhanced security and reliability, and faster time to market for application development. With benefits like that, one might wonder: why aren’t all applications re-built on a cloud code base?

The answer to this question is not so simple as it boils down to cost, time, and the inflexibility of existing technology. Most asset managers perform several critical day-to-day functions on technology that ranges from 20 – 30 years old. Though anything can be “moved” to the cloud, the resources involved in re-writing code to function in a cloud environment are substantial if not insurmountable. For most applications, this is a slow, piecemeal process of optimizing certain elements for cloud capability and de-prioritizing others. Enter the cloud capable solution.

Most major applications in the middle and back office are cloud capable, not cloud native. For some vendors, this may mean the flexibility to use data as a cloud (DaaS) solutions as an add-on to their standard software. For others, this may mean hosting client data in AWS. For a few, this may mean painless upgrade processes. What’s important for asset managers to understand is that all cloud capable solutions are not equal.

If undergoing a search for a new platform, it is not enough to ask: “does your solution have a cloud-enabled open architecture?” because that will mean something different to every vendor. Asset managers should instead ask “can I plug in this DaaS platform of choice and be able to run this daily report as soon as we go live?” This puts the onus on the asset manager to understand what they want to keep, how they want to operate, and where their priorities lie.

At this point in the industry’s journey toward cloud maturity, there can be no assumptions—it takes a level of discernment, granularity, and vision to align a firm’s cloud-enabled goals with a vendor’s. That is not to say asset managers need to scrutinize every technology stack or application, they simply need to be clear on their requirements and communicate those upfront.

How cloud is re-shaping the solutions landscape

Cloud native solutions may be the standard bearer, but they are few and far between in a solutions landscape that is dominated by trusted incumbents—many that offer technology built in the 80’s and 90’s. The age of this technology is, in many ways, an advantage. Solutions that have stood the test of time are functionally rich and have nuanced capabilities that work extremely well for the complexities that large, global asset managers face in day-to-day operations. Not only is this functionality critical to the business, but it comes with the knowledge that this software can be relied upon and has been trusted by peers and colleagues for decades. A cloud native solution may offer numerous benefits, but proven and time-tested functionality is not yet one of them.

Solutions providers know they must move toward the cloud but face an uphill journey to get there. What has emerged recently is a middle path: collaboration with cloud native vendors. Many of the partnerships and collaborations we are seeing in the industry are driven by a need to innovate with cloud-enabled technology. The hope is that by working together, solutions providers will continue to advance cloud enablement with the build out of robust functionality and a lesser degree of technology risk. This evolution will no doubt be a long road, but we look forward to seeing how it re-shapes the solutions landscape in the years ahead.