“I foresee a lot of bespoke solutions in the next five years”

Ulrik Modigh is the chief operating officer of one of the Nordics’ largest securities operations: Nordea Asset Management. In PostTrade 360° Stockholm, he shared details on his successful centralised operating model – including where it came from, and where he aims for it to go next. Read it, or see the full 16-minute session for yourself.

[This is an extended version, including the full-session video, of the brief post that was published on the conference Friday, 26 March.]

“Clients are asking for more and more bespoke solutions, including bespoke data solutions,” says Ulrik Modigh, interviewed by Bastiaan Aalders of consultancy Alpha FMC.

Advertisement

“I think an agile way of working is a good answer to those requirements, and that you stop these big 6- and 12-months projects to deliver something.”

Although the whole session is only 16 minutes, it offers a lot of candy for securities operations professionals. Some personal background leads up to his current employment with Nordea Asset Management, going 15 years back. A determined move into a central operating model has proven over time to be the right choice.

“We have an operating model where a portfolio manager can sit on the moon, he can manage a fund in Luxembourg and it can be sold in Sweden. But it’s the same settlement team in Copenhagen that is servicing everybody. And that was a smart move at the time,” says Ulrik Modigh.

“When I joined, they were in the process of implementing a new portfolio management system. As we are in Denmark, the natural choice at the time was Simcorp Dimension; Simcorp is located one kilometre from our headquarter. Basically, we closed or decommissioned six, you can say, legacy systems across Nordea, in Denmark, Norway, Sweden, Finland. I think we made tons of mistakes in making this implementation – but what we did right was to decide from the beginning that we wanted a central operating model: central teams, each team servicing everybody. We had a high focus on scale, scalability, automation … As we know, we have an outset in the Nordics with high salaries. And you can say that these decisions are actually what we are benefiting from today.”

Bastiaan Aalders: “Then in the last five years, what are the changes you have made to become even more flexible and more client centric?”

“The first thing I think we decided on was to increase the bandwidth in terms of instruments to get more flexibility into the investment processes. So you get more alpha capabilities. And at the time we started it, we did not have a lot of demand for it, but in hindsight it actually turned out that it was a wise decision,” says Ulrik Modigh.

“We also formalized, you can say, our decision making in bodies and committees. You can say a forum where we could discuss with sales and investments what to do – and what not to do. I think that has facilitated the work a lot (and I think that is what is done all over the place). The last important thing we did, I think, was that we changed our operating model in terms of project execution, something we have done over the last one, two years. So we have also taken in this agile way of working – and I think this bringing-together of business and IT technology has been a wise decision from an execution perspective. And I think it’s quite an efficient model and I can also see that it creates a bridge between the business and the IT – where maybe IT in the past was a kind of a group sitting in the corner, ensuring that all the batch job was actually executed during the night. Their role is is definitely changing these days.”

“Agile transformation projects are big projects. What was your trigger? What made you think that, as an organization, you had to go through this transformation to a new way of working?”

“There were a couple of elements to the decision and we tried it out small-scale before we rolled it out to a bigger part of the company; we are actually still in the process. The main thing was that I could see that, first of all, the solutions that we have to develop requires more different domain competences. So you need more different kinds of people in the project, when you are developing. And there was this tendency that we were spreading out too many people on too many different minor and small projects, and I could just see that it was not efficient.”

“The second thing was, I think the scope is becoming more difficult to to basically clarify, upfront. You could say that in the good old days, you basically made a very detailed description, then handed it over to IT – and then something came out which was basically out of date when it was done. So when you do it this new way, you can basically change the direction much, much faster as the scope is changing. I mean, it’s a moving target all the time. I think that is that is one of the good elements in this operating model. And then I think the last thing is about, you know, bringing IT and business together.”

“Exactly, that is what we say as well: Think big, start small and scale fast afterwards is probably the right way to approach such a project. And if we look at the future of the industry itself, do you think that this is a trend that will continue in the asset management space: becoming more client centric, data centric and agile? (Those three go hand in hand, in my opinion.)”

“Yes, I think it’s about the changes that are coming to the entire industry: ESG and all the other components that are driving in the same direction.”

“Does your SimCorp-based operating model fit well with your agile transformation? Or do you see that your provider may have difficulty following your speed and your agility?”

“It is a general issue that requirements are expected faster. I mean, it’s all about speed. So I think that software providers across the board have challenges following their clients’ requests. And therefore I also believe, as you were saying, things will become more data driven. So you can say clients don’t want packages of reporting, they basically want the data so they can fit them into their own models. That is one element. Our platform, from that perspective, is quite flexible, because we could configure it ourselves. I think that is very helpful when we are driving in this direction. What will be important for the software providers in the future, and that goes also for our platform, is that they have full API support – because as data is the driver, you need fast access to data. You don’t want to be the one who changes your own infrastructure and programs because the software provider is changing his.”

“And what is what is on your roadmap for the next five years?”

I think it is what is being said in all the conferences; we basically follow the same as everybody else: it is the cloud journey. It is about tapping into scalability from a storage and CPU perspective, I believe it’s cheaper, it’s more flexible. And you get access to solutions, softwares and technology which you don’t have on your own servers.”

“Then it’s a data data game. I mean, it is clear to everybody now that data is an asset to a much bigger extent than five years ago. And this is what everybody wants. So we need, as well, to make sure that our data infrastructure can support all the needs from the clients across the board. And the complexity added is this entire ESG journey. There is this transition from a black to a green economy, and integrating this into investment processes across all asset managers in Europe is a tremendous task lying ahead of us.”

“I believe that this is also somewhere you can see that the software providers don’t have the solutions yet, because it’s not a mature market yet. Everybody’s trying to find their feet in terms of their product offerings, but also how they can make sure that they are compliant with the legislation, which by the way, is still incoming and new. So I see a lot of bespoke solutions in next five years.”

“Yeah, we did a survey last year on data management. What was funny was that the asset management industry seems to be behind other financial services, and only a few other industries were lower on the scale than asset management in terms of the evolution of data management. One last question, because it’s also very important, the integration of ESG data into that environment … Is that something that you already have, or is it on your roadmap?”

“We are a bit lucky in that as a Nordic company. Especially in Sweden, we have had these ESG products for the last 10 years. So we have an offering and have worked with this for many years. So for us, it’s a matter of scaling it up to the products which have not had the green stamp and the green characteristics yet. And then of course, make sure it’s compliant with the incoming legislation. So it is on our roadmap, it will be for many years, but we have fortunately been working with this for some time already.”

• PostTrade 360° Stockholm 2021 took place on 25–26 March. News around the event is gathered here. 
• Find the 44-page event magazine here.
• By the way … are we connected on LinkedIn already, among the 1,600 post-trade pros who are? Follow us here.