BFS (banking and financial services) is certainly a major revenue grosser for IT companies worldwide. However, within BFS, the capital markets segment is growing faster than ever. For Hexaware, a Mumbai-headquartered mid-size IT service provider, capital markets contribute to over 60% of the revenues at present from an insignificant amount pre-2008 or Lehman Brothers collapse, a crisis that changed the world economy forever. Since then, the main players in global capital markets – investment banks, asset managers and stock exchanges, have started to focus and invest heavily in technology to keep frauds under check because another Lehman-kind of crisis might just wipe out $110 trillion worth of assets in the blink of an eye. It has also led to tightening of regulatory norms and emergence of usage of new-age technologies, including Robo-advisors, data analytics, and AI said Murli Janyani, Head – Practice and Competency Capital Markets at Hexaware Technologies. He also spoke about the challenges plaguing the capital market segment, the role of data analytics and how Hexaware is using Advanced Analytics in overcoming those. Besides, he talked about opportunities and upcoming trends.
Can you give some insights on some trends and growth estimates for global capital markets?
Based on the trends that we have observed, CAGR for the global capital market has been at 7 to 8% and by the end of 2020 Global AUM (Assets Under Management) is estimated to be more than $110 trillion.
We expect Retail Investment (Mutual funds and ETF) and Institutional clients’ AUM to grow similarly. However alternate investments like private equity and real estate are poised to grow rapidly. Developing countries are witnessing a burgeoning growth of personal wealth. However, profit margins are falling globally due to various reasons like rising regulatory costs, technology costs, competition from passive players, etc. In the forthcoming 10 years, major changes are expected in fees, products, distribution, regulations, technology, and people skills.
How would this be different for APAC vis-a-vis developed markets?
As mentioned previously, AUM in developing countries is growing rapidly versus developed nations. An example would help relate better or is it well known that developing countries and developed nations will be known by all. In APAC itself we can observe that AUM is growing by 8 – 9% and in the future, it may accelerate to 11 – 12%.
What has been the impact of recent regulations, such as AIFMD, UCITS, MiFID – II and III?
Regulations are being introduced globally to force transparency in asset managers’ activities and to prevent them from paying commissions to incentivize distributors. This has led to lower-cost retail products and introduced new business models like Robo-advisory.
Regulators are asking asset managers to provide more data on their dealings and provide end-to-end lineage of the data they are reporting about. Asset Managers are forced to implement stringent data governance measures. This has led to many data management related projects and platform changes in the asset management world.
What are some of the other challenges plaguing capital markets?
Apart from regulatory changes, there are other requirements or challenges to tackle like- some client is looking for a solution that fits his/her needs and they are not looking for general products that fit active/passive style of investing. So asset managers have to come up with multi-asset solutions that are driven by environmental, social and governance factors. Asset Managers must have a thorough understanding of their investors’ needs, tailor customized solutions and focus on optimizing distribution channels. New entrants providing low-cost solutions like Robo–advisory and Algo trading solutions require the asset managers to bolster their technology capabilities to circumvent new entrance risk.
How would capital markets cope with changing market scenario?
Technology and advanced analytics will play a significant role in capital markets to cope with changing market scenarios. Technology and advanced analytics will drive huge changes across asset management business from new client acquisitions, customization of investment advice, research and portfolio management, distribution and client engagements. Apart from this outsourcing of non-core businesses like middle and back-office processes, outsourcing will also play significant roles.
Apart from advanced analytics, are there any other solutions?
Advanced analytics will play a prominent role in serving customers. Apart from this, asset managers and wealth managers are also looking to leverage solutions on cloud, outsourcing models like middle and back-office process outsources for better cost saving and enhanced customer experience.
Has Hexaware done work in analytics space?
Yes, we have done various projects in analytics space for asset managers, wealth managers, and asset servicing firms, right from leveraging traditional technologies to new-age digital technologies including AI, machine learning and digital information delivery platforms.
For e.g., Hexaware has built a solution for a leading asset management firm that leverages AI/ML for smart account review of their fiduciary and regulatory requirements. We have built the complete data management solution with a 360-degree bird’s eye view for management of their fund management business covering sales, flows, AUM, fund accounting, regulatory and compliance breaches, etc.