Many financial institutions are running on legacy technology – decades-old and tightly coupled systems that are hard to customize, slow to operate and expensive to maintain. In many respects they are paying the price for being early adopters of digitalization, and their technology has not easily kept up with changes over the past few decades.

To the industry’s advantage, however, the world of third-party software, components and data has evolved in the past two decades thanks to increased specialization, competition, open standards and, more recently, cloud computing. The menu of tools that managers can buy out-of-the-box to replace expensive home-built capabilities can untangle the old Rube Goldberg-like technology stacks and lead to economic efficiencies and scalability.

“The building blocks have changed,” said Pawar, who previously led technology divisions at buy-side firms including D. E. Shaw & Co., UBS Wealth Management and AQR Capital Management. “We used to think of buy-versus-build as a very deep technology problem. These days, however, clients can assemble the workflows and applications needed to operate front-to-back value chains very differently from the legacy ways.”

_{Neal Pawar}

The path towards a solution: proprietary or commodity?

The technological transformation of recent years has seen the commoditization of services including accounting, trade order management and execution, risk calculations and complex analytics. They have moved from internal, built-from-scratch capabilities to off-the-shelf solutions.

Pawar likened the tech stack of an asset manager to an iceberg, as featured in Figure 1. Activities above the waterline are those designed and fully operated in-house, while those underwater are commoditized services that can be bought or contracted out. Comparing 2000 with 2022, it can clearly be seen which technical domains no longer need to be developed by internal staff but can be replaced with commoditized solutions.

Figure 1: The evolution of buy vs. build in asset management 

_{Source: Qontigo.}

“About 20 years ago, pretty much the only things that you could truly rely on to buy were electricity, data centers and networking,” said Pawar. “Now, many of the proprietary technical components have gotten more commoditized.” 

The invent-to-utility map 

From the tip to the base of the iceberg, services can be clustered into four groups, according to Pawar. These are:

• ‘Invent’ (top): areas where the manager creates proprietary services to generate alpha and gain a competitive edge.
• ‘Co-create’ (higher middle range): services where the client keeps control but uses a ‘mix and match’ of outside components. 
• ‘Buy and Integrate’ (lower middle range): external services that can fit into a client’s own systems.
• ‘Utilities’ (bottom): services that should be outsourced. 

This classification can help guide managers on development methodologies (e.g., agile vs. lean vs. outsource) and to decide where to devote capital, time and effort, Pawar explained.

“With utilities, the goal is to lower costs,” he said. “The things in the middle, you want them to be lean, you want to reduce your waste and to learn from your mistakes so you can improve in that area. All the way to the top — that is where you want to reduce the cost of change. You want to test new ideas and get them into production really quickly.”

The case with data

Data services are emblematic of the technology evolution, with information storage and processing moving from company servers to the cloud.

These days, a manager can access terabytes of information from a data vendor via a cloud-based marketplace or exchange at the click of a button, format it, process it, integrate it into their systems and leverage it from their cloud environment. This step-change has eliminated the need for internal resources building feed handlers, parsers and the like. 

“We used to buy machines – hardware – and appreciate their capabilities and refresh them over time,” said Pawar. “We don’t care about that anymore now. We buy computing as a service, and we pay for the units of compute that we use. We are replacing our data centers with the cloud.” 

The evolution of the index

Commoditization has also impacted financial products, with indices being a good case study. Index fund managers have gotten more sophisticated over the years, as have the index products they track. Benchmarks will always have their place, but as the industry moves to more complex portfolio construction and alternative sources of beta, clients are looking to take a thesis and build it with their own data and models, while leveraging the index provider partner to pull it all together in a compliant and transparent manner.

STOXX and DAX are able to do this today using the same analytics and portfolio construction tools that Axioma makes available to its hedge fund, asset manager and asset owner clients. Qontigo combines the STOXX and DAX index offering with Axioma’s risk and analytics solutions.

“You can go all the way and buy an ETF which is based on one of our indices,” said Pawar. “Or you can customize your goals, buy an optimizer and factors and put them inside your engine. And make all that in a very short time-to-market.” 

Using the iceberg analogy again, Figure 2 shows the activities a fund manager can purchase as a service from index providers in 2022, compared to the world in 2000.

Figure 2: The evolution of buy vs. build for fund managers

_{Source: Qontigo.}

The new framework

This new services ecosystem is made of products that are connected yet loosely coupled, Pawar explained. It works best with cloud-native vendors that are API-first, meaning their infrastructure is accessible and extensible, and that run an open architecture through which the client can obtain and integrate the third-party data of their choice. 

Loosely coupled systems lead to more competitive products and services, but more importantly, they allow for changes, improvements and upgrades in a far more efficient manner as opposed to homegrown, monolithic application architectures.

“You can bring new datasets in and play around with them without having to worry,” said Pawar. “For asset managers, a more flexible ecosystem means they can develop cheaper products and services faster, and more efficiently.”

Pawar concluded by recommending that his listeners think about what is already commoditized in what they are doing — and then to buy more of those products, while focusing on building proprietary capabilities in areas where they can make a difference. 

“What are your differentiators?” he said. “That’s really where you want to put your firepower.”

¹ Qontigo’s Investment Intelligence Summits took place in London on May 5 and in New York on May 19. 

This year’s Summit, which we have called ‘Together in ’22,’ will take place in London on May 5 and in New York on May 19. The two events will offer insights on some of the most important topics from industry thought leaders as well as Qontigo experts. 

Last September we celebrated the second anniversary of Qontigo, launched in 2019 to bring together the analytics and indexing capabilities of Axioma, DAX and STOXX. These annual summits are an opportunity to present and discuss the latest developments in both fields, and to hear from practitioners, academics and industry partners on trends across the financial-services and technology spaces. The conference has become a key date for asset managers, asset owners, hedge-fund managers, ETF issuers and structured products participants, and for the team at Qontigo. We are particularly excited to be back together in person this year to connect ‘with you.’

Sustainability and climate risk

This year we will be covering a truly rich and wide menu of topics — from ESG to factor and thematic strategies. Key among them will be the subject of responsible investing, as few issues continue to dominate investors’ agendas as strongly these days. 

Two panels will examine climate stress-testing. In one of them, we’ll hear from Sarah Hopkins and David Nelson from Willis Towers Watson (WTW) on the firm’s unique Climate Transition Value at Risk (CTVaR) methodology, which helps investors run a forward-looking, bottom-up evaluation of asset repricing risks in a decarbonization pathway. CTVaR lies at the center of the STOXX Willis Towers Watson Climate Transition Indices (CTIs), which are specifically designed to help investors manage climate-transition risks.

Next up, Bert Kramer of Ortec Finance will walk us through ways to model the impact of climate change on a portfolio. Founded by leading experts in the fields of econometrics and technology, Ortec Finance’s ESG and Climate solutions combine research-backed knowledge, advanced financial models and innovative technology. 

ESG data and responsible investing

We’ll also hear from a panel of leading sustainability data providers on the challenges and opportunities of building sustainable portfolios. Panelists from Clarity AI, ISS ESG, RepRisk, SDI AOP and Sustainalytics will share current challenges and best practices for integrating ESG data into the portfolio construction process.

The London Summit will also feature Ronald van Dijk, Managing Director and Deputy Chief Investment Officer at APG of the Netherlands, to discuss the role and benefits of custom ESG indices. APG last year partnered with Qontigo to launch the iSTOXX APG World Responsible Investment (RI) Indices, a suite that incrementally layers in ESG, carbon and Sustainable Development Investments (SDI) ambitions.

In New York, Professor Roberto Rigobon from the MIT Sloan School of Management, one of the researchers leading MIT’s Aggregate Confusion Project, will deliver a keynote address on ‘The ESG Zoo and What to Do.’

Our own Melissa Brown and Rob Stubbs will dissect the expanding world of Sustainability ETFs to explore whether fund naming conventions actually mean anything for investors.

Finally, Andrew Ang, Head of Factors, Sustainable and Solutions for BlackRock Systematic, will close the day by sharing his unparalleled expertise in quantitative investing and dive deep into the topic of Sustainable Alpha.

Thematic and factor investing

The London summit will host a dedicated panel on thematic investing. We will give the floor to Rob Powell, Head of Thematic & Sector Product Strategy at BlackRock, and Qontigo’s Christoph Schon to hear how a changing world and market background in 2022 will affect an investment segment that’s boomed in recent years. 

Nick Baltas, R&D, Portfolio Construction and Cross-Asset One-Delta Strategies at Goldman Sachs, will also take the London stage to share his thoughts on a topic that is top-of-mind with investors this year: inflation. In particular, Nick will discuss how systematic investing can provide solutions in the current inflationary regime.

In other presentations, Qontigo’s Applied Research team will lead the audience through interesting conversations around factor investing and a proprietary model to gauge investor sentiment. 

Technology in focus 

We are also pleased to have two very knowledgeable speakers that will bring into focus the technology side of our business. Andy Brown, CEO of Sand Hill East and CTO of Fintech Innovation Lab, will join us with a presentation promisingly entitled ‘Change.’ Andy and the team at Sand Hill East work with startup technology companies to help them develop their businesses — from idea to go to market.

Neal Pawar, COO at Qontigo, will also cover the future of FinTech by unpacking how ‘buy vs. build’ has evolved over time, the factors influencing this evolution, and how firms can best prepare for the changes ahead.

Reserve your seat

These are just some of the highlights we have prepared for the two days, and there will be more, including wellness breaks and a cocktail hour that will be a great opportunity to meet up with colleagues and make new acquaintances.

You can register for the event, and view the full agenda, here. 

We hope that you will join us!


* Molly McGregor is Chief Marketing Officer for Qontigo.

This study analyzed four tech-oriented thematic indices intended to capture overarching themes that, given the rapid evolution in technology, are likely to continue to be, or to become, megatrends:

• STOXX^® Global Artificial Intelligence (“Artificial Intelligence”),
• STOXX^® Global Automation & Robotics (“Automation & Robotics”),
• STOXX^® Global Digital Security (”Digital Security”), and
• STOXX^® Global Fintech (“Fintech”).

Ceria was cited by the NAE for his work in the “application of optimization tools to advance integer programming and financial engineering.” The author of numerous articles in industry and academic publications, Ceria has helped to drive innovations in robust optimization and its application to portfolio management.

Ceria was previously CEO of Axioma, a developer of risk analytics and portfolio-management tools and software, which he founded 1998. In 2019, Deutsche Börse Group (DBG) acquired Axioma and named Ceria CEO of Qontigo, a new global company with over 550 employees, combining the sophisticated capabilities of Axioma with DBG’s STOXX and DAX indexing businesses.

Before founding Axioma, Ceria was an Associate Professor of Decision, Risk and Operations at Columbia Business School. Ceria holds a PhD in Operations Research from Carnegie Mellon University’s Tepper School of Business, and a degree in Applied Math from the University of Buenos Aires, Argentina. He is a recipient of the Career Award for Operations Research from the National Science Foundation.

The latest NAE peer elections bring the Academy’s total U.S. membership to 2,355, plus 298 international members. The NAE’s mission is “to advance the well-being of the nation by promoting a vibrant engineering profession and by marshalling the expertise and insights of eminent engineers to provide independent advice to the federal government on matters involving engineering and technology.”

For more information about the NAE, please visit their website at https://www.nae.edu/.

“It’s a great honor to receive not one but two awards from The Asset this year. Innovation and technology are core attributes for us as an index provider. The Global NexGen Communication Innovative Technology Index and the STOXX Paris-Aligned Benchmark Indices and the STOXX Climate Transition Benchmark Indices are recent examples for how we are on the cutting edge of innovation and client focus. Our success in Asia is built on cooperation with strong local partners, who help to understand precisely the expectations of regional investors when creating new index concepts.”

Rick Chau, Qontigo Head of Asia/Pacific

Recent launches in Asia include: Four Megatrend funds in Japan with SMAM; and STOXX Global Artificial Intelligence ETF in Taiwan with Yuanta.

The Asset is a multi-media publishing and research company that has been in APAC since 1999. They are considered one of the leading media companies working within the Treasury, Wealth Management and Investing space.

The index is comprised of companies that can benefit from the ongoing technological progress in the telecommunications industry. Yuanta will list an ETF on the Taiwan Stock Exchange on July 7, 2020.

“We are very delighted to work with STOXX once again. We have been cooperating with STOXX since 2017 in researching AI, 5G, Aging and other themes, an innovative area that we called Mega Trend. This is mainstream not only in Taiwan but also in the world. Yuanta has always been the pioneer in providing innovative investment solutions for Taiwan’s investors. The Taiwan ETF market has grown dramatically since 2017. At the end of May 2020, the size of the Taiwan ETF market reached $58.6 billion USD. It has grown 518% since 2017,” said Julian Liu, Chairman of Yuanta SITC.

“We are happy to deepen our relationship with Yuanta SITC while strengthening our commitment to Asia, especially in the thematic space. The iSTOXX Global NexGen Communication Innovative Technology Index focuses specifically on companies providing the network equipment, infrastructure and semiconductors required for the rollout of telecommunications services,” said Rick Chau, Head of Index for the Asia-Pacific Region at Qontigo.

The iSTOXX Global NexGen Communication Innovative Technology Index selects profitable companies that derive significant revenues from 32 sectors associated with the innovative communications technology theme, based on Revere (RBICS) data. The investment universe consists of all stocks in France, Germany, Japan, Netherlands, South Korea, United Kingdom, United States, Hong Kong and Taiwan. Also included are China A shares listed in Shanghai/Shenzhen that are participants of the Stock Connect Program, as well as Chinese ADRs and so-called P Chips, Red Chips and H-Shares. The index is free-float market-capitalization-weighted with weight caps and has a maximum constituency number of 100.