Three priorities for Bermuda-based asset managers

Bermuda fund managers are at a pivotal stage as they strategize to leverage and manage the sweeping changes in digital technology.

Bermuda fund managers, including a new breed of Bermuda-based insurance-linked securities (ILS) asset managers, are at a pivotal stage as they strategize to leverage and manage the sweeping changes in digital technology.

Many managers are dealing with the challenge of digital disruption by better leveraging data and analytics. Resiliency expectations and regulatory exposure are also key concerns. And as always, managers will need to balance risk vs. the costs of remediation and maintenance.

Recently, leaders from EY Wealth and Asset Management, Insurance and Consulting services met with several Bermuda-based ILS companies to hear about ILS sector-specific challenges as well as share broader industry perspectives. Below are the common themes that surfaced, along with our observations and perspectives.

1. Digital is disrupting operating models

Digital technology is creating opportunities for integration and improving the transparency between asset managers and service providers. And some emerging technologies promise operational efficiencies for commoditized functions.

In this environment, asset managers are questioning what parts of their operating model are core and differentiating and what parts can be better executed by a third-party provider. Fund managers are also questioning the extent of the shadow or mirror accounting activities that they’ve considered crucial in the past.

Overall, asset managers are outsourcing more of their non-core functions to focus their resources on optimizing performance for their portfolios and investors.

2. Data and analytics are key differentiators

Data and analytics have always been at the heart of asset management, but the challenges and opportunities around them are shifting. As data sources, volume and velocity increase, integrating legacy data into systems can introduce issues around data integrity.

“Established managers have an advantage in developed models and proprietary analytics, but it can be difficult to introduce new data sources into these models. By contrast, new entrants often have the advantage of starting with a clean slate — with systems that have ever-increasing functionality and processing power,” said Craig Redcliffe, Partner and Regional ILS Leader, EY Bermuda Ltd.

Managers will need to continue to strike the right balance as they integrate data and analytics into business operations.

3. Risk, resiliency and regulation demand increasing attention

Digital technology and data dependency expose every company to cyber risk, but the risk for asset managers is exponentially higher due to a confluence of personal financial data, proprietary intellectual property and the lure of an asset-rich target.

Meanwhile, resiliency expectations, internally and externally, are ever-increasing. Managers and operations teams depend on systems that are available and current, as do clients and shareholders.

Regulatory compliance, including anti-money laundering (AML) statutes, also has the board’s full attention as companies increasingly incur reputational and financial damage from fines and unfavorable headlines.

Unique considerations for Bermudian companies

The above challenges can have increased consequences for Bermuda-based fund managers. More than their counterparts in the US and EU, asset management firms in Bermuda are fundamentally international, with the related challenges of reach, operational costs and structure.

Bermuda-domiciled managers span jurisdictions for investors, investments, service providers, operations and regulators. As such, they must closely consider their target operating models to make sure they are efficiently structured, getting the most out of vendor and partner relationships, and maximizing operational efficiency.

“The long-term leaders will be the companies that are able to maintain strong returns and investor trust, realize operating model and operational process efficiencies and leverage data and technology to provide risk and investment insight,” said Jessel Mendes, Partner and Regional Growth Markets Leader, EY Bermuda Ltd. based in Bermuda.

About the EY Region of Bahamas, Bermuda, British Virgin Islands, Cayman Islands

The EY region of member firms in the Bahamas, Bermuda, British Virgin Islands and Cayman Islands is aligned with the EY Americas Financial Services Organization, headquartered in New York. We serve the banking and capital markets, insurance and wealth and asset management sectors providing a broad suite of advisory, assurance, transaction advisory and tax services with a focus on providing seamless, exceptional client service.