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Asset allocators not prepared for market complexity: Milestone

Institutional asset allocators face an increasingly complex investment landscape, but do not have the tools to efficiently implement and manage new strategies, according to Milestone Group.

The research found that institutional asset allocators are still relying on spreadsheets and aging technologies that are reaching the end of their useful lifecycle.

The Asset Allocation Technology Survey 2020 looked at the current and future technology requirements of institutional asset allocators, both asset owners and investment managers.

Milestone said there has been  increasing pressure on asset allocators to deliver better outcomes by designing and implementing more complicated investment strategies.

Milestone said this gives rise to portfolios that are more challenging to monitor, manage and transact.

Surveying 47 institutional asset allocators, 82% of respondents reported that investment strategies are becoming more or much more complex.

"While technology is identified as being crucial to achieving investment objectives, fragmented processes remain a challenge with 50% of firms saying they use four or more systems for monitoring portfolio exposures alone," Milestone said.

"Some firms are using as many as 13 different systems/providers across all investment functions."

Additionally, the survey found that half of all respondents indicated their current technology profile is comprised of multiple legacy systems and spreadsheets.

One quarter of respondents also said they are still using spreadsheets to manage critical functions such as monitoring portfolio exposures.

Milestone said the research shows that a clear industry consensus on the best type of technology solution is yet to arrive.

Around 38% of respondents said they either do have, or would prefer to have, a built for purpose institutional asset allocation investment management platform.

Milestone's vice president asset allocation Randal McGathey said: "The impact of asset allocation on outcomes is well recognized and institutional allocators continue to be both propelled and constrained by the complexity of their work.  The report finds that current state technology is highly fragmented across the front and middle offices."

"We know that investment strategies will advance and complexity and demand for scale will increase still further. Reading between the lines, we see evidence of an acceleration in the need for market solutions that strengthen and standardize the underlying platform while supporting product innovation and bespoke investment processes."

Read more: Milestone GroupAsset Allocation Technology SurveyRandal McGathey
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