Marc Mallet, Global Head of Platform Strategy, Northern Trust Corporation.

In 2023, despite a consensus that outsourcing has obvious benefits, it is still a logistical headache for asset owners and managers. So said Marc Mallet, Global Head of Platform Strategy at Northern Trust.

However, operations teams should still take advantage of outsourcing solutions – especially hyperscale options – as well as demand higher levels of productivity and efficiency from their providers, Mallet added.

Mallet’s comments were featured in a recent Clear Path Analysis report on “Effective investment risk and data management for asset owners and insurance professionals”, published in partnership with Rimes Technologies. Mallet took part in a roundtable debate that included several senior figures – from pension funds, insurers, and servicers – discussing the risks and solutions around investment data needs for asset owners.

The debate turned to a question of outsourcing: what the arguments were for either side, outsourcing versus in-house construction, and where the practice could head in the future.

“We’re all concerned about data security and privacy, but you should still take advantage of hyperscale solutions and demand efficiency from your providers.”

Mallet framed outsourcing as “giving up control”, and said it was still “something that people struggle with”. Still, he came out as pro-outsourcing, using the example of the software industry to illustrate his fundamental point. “If you look at the software industry, a new software company wouldn’t buy servers and put them in a data centre; it would leverage AWS or Azure,” he said.

“We’re all concerned about data security and privacy, but you should still take advantage of hyperscale solutions and demand higher levels of productivity and efficiency from your providers,” he added.

Outsourcing hitches

However, topping his list of concerns – and major logistical difficulties – were headaches around data security and privacy. “We haven’t solved all the problems, but we are focusing on providing solutions directly to investment teams,” he said.

Another significant data issue was getting data from the custodian in a timely manner. This point surfaced multiple times from the asset owners on the panel. To this, Mallet said that where a platform in which investors could manage data independently of their custodians might be more timely and accurate, the custodian was better at core safety, record keeping, and cash management.

“We’re now focusing our efforts on unlocking data and making it more accessible.”

Due to investor commentary, data accessibility was of course a top priority, he continued. “We’re now focusing our efforts on unlocking our client’s data and making it more accessible,” he said.

Describing his team’s trajectory and progress made so far, he added that they had done a lot of work with application programming interfaces (APIs) and end points for client solutions, but sometimes ran into roadblocks. For example, there were instances in which the firm’s clients would return saying their systems couldn’t consume API data.

He explained that sticking points like this one was how innovate solutions were born – from all of the hitches in the process. “Something like Snowflake then comes around, which is data sharing,” he said, gesturing toward new solutions.

An innovative future

Ultimately, Mallet thought those kinds of products – ones that made data more translatable, transferable, and interpretable – would play a significant role going forward. “It’s our job to make our clients’ data available to them when and in whatever form they need,” he said, noting that client demand was the predominant driver for market change.

“The integration of process and data is important. Clients are looking for technology-enabled service provisions.”

Another common pain point mentioned during the discussion was the amount of time that went into manager evaluation for asset owners. Mallet agreed with this sentiment, saying that a platform that allowed for the integration of information on prospective and existing managers was absolutely key to allocation decisions.

He was adamant that investment technology needed to be better incorporated in the allocation process, to ensure accuracy and keep up with the sheer amount of data available globally. “The integration of process and data is important,” he said. “Clients are looking for technology-enabled service provisions.”

Plug-and-play models shine

Still, Mallet stressed that whilst outsourcing is often the solution – especially with smaller, more resource-crunched organisations – a 100% outsourced approach isn’t always the best option. “Full-blown outsourcing”, as he called it, wasn’t necessarily the way to go.

Instead, he stressed the importance of what could colloquially be called a plug-and-play model, or, “the option to take services directly from partners when it makes sense and align them with everyday technology.”

“The industry mistakes size for complexity. On a small team, one is expected to do everything.”

This strategy, Mallet said, would help companies futureproof their operations. He felt the industry had historically done a bad job of supporting smaller, more resource-constrained organisations. “Often, the industry mistakes size for complexity,” he said. “On a small team, one is expected to do everything from managing the investment process to operations and data management, to both internal and external reporting.”

Real futureproofing, he said – that is, concrete actions that enable consistent, measurable change – would likely utilise Cloud-based capabilities. “When it comes to data and enterprise risk, there is nothing worse than sending spreadsheets of client data around. We want to avoid that at all costs,” he continued.

Whilst the outsourcing trend is here to stay, the kinks have yet to be ironed out. As it becomes an industry standard, Mallet’s takeaway for asset managers and owners was to “demand more” from key partners.

To see more from this conversation, and read the report in full, please click here.

 

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