Financial Engineering-as-a-Service: New Report from GenTwo

This newsletter is part of The Assetizer, GenTwo's thought leadership platform.

Recently my colleagues in GenTwo Research published a report examining how legacy infrastructure breakdown, capital efficiency requirements, and expanding asset classes are reshaping financial markets infrastructure. The premise: institutions can no longer solve these problems with incremental fixes—they need new infrastructure. 

In this post I cover the highlights. You can also download the report for free from the links below. 

The Three Imperatives 

The report examines three forces reshaping financial institutions: 

The Scaling Imperative: Legacy systems constrain competition. Banks building infrastructure in-house face 18-month timelines and substantial capital expenditure. Buying external solutions takes 1-3 months with predictable operating expenses. The constraint isn't theoretical—legacy core banking systems built on outdated programming languages create technical complexity, rigid architecture, and prohibitive maintenance costs. Resources needed for transformation get spent maintaining old systems instead. 

The decision between building and buying is no longer just about cost. It's about competitive survival. The $278 billion Financial Markets Infrastructure sector grows precisely because institutions are choosing to buy rather than build. New financial rails are emerging, powered by cloud computing, AI-driven automation, and API-first platforms. 

The Capital Efficiency Imperative: Regulatory constraints demand capital optimization. The top three US banks hold $7.4 trillion off-balance-sheet. The reason is measurable: institutions using financial engineering to optimize capital allocation achieve 20-25% higher return on regulatory capital than peers, according to the report. 

Under Basel IV, the ability to scale off-balance-sheet becomes operationally necessary. Banks can focus on active portfolio management, optimizing how quickly they can churn portfolios and originate-to-distribute loans to reduce risk-weighted assets. The challenge: most institutions lack infrastructure to efficiently optimize and scale these strategies. Current approaches involve manual structuring processes, siloed systems preventing holistic optimization, and limited ability to rapidly deploy new off-balance-sheet products. 

The Assetization Imperative: The investment universe is expanding beyond traditional asset classes. The report estimates $78 trillion in assets—real estate, intellectual property, weather derivatives, travel bookings—can now become investable products through technological innovations in assetization and tokenization. 

These assets have historically been complex to include in managed portfolios due to limited liquidity, complex valuation methodologies, high transaction costs, lack of standardization, and ownership verification challenges. The Assetization process creates standardized investment wrappers for any underlying asset, bringing increased liquidity through fractional ownership, lower transaction costs, expanded market access, and enhanced transparency. 

The trend extends beyond non-bankable assets into entirely new categories: data streams as tradable assets, weather derivatives hedging climate-related risks, betting markets around sports and politics evolving into structured tradable markets, and non-refundable travel bookings convertible into transferable assets. 

The Convergence 

The report argues these three forces converge to form a new infrastructure category: Financial Engineering-as-a-Service. 

FEaaS describes infrastructure that enables institutions to design, create, and manage investment products at scale and off the balance sheet, without building proprietary technology stacks. The category encompasses algorithmic financial structuring, embedded securitization, and API-driven lifecycle management. 

The report reframes the pressures as three problems: 

• An asset manager on infrastructure gaps: "Fast movers are killing us. We must invest in infrastructure to scale our business and be more cost-efficient than competitors. But building in-house is expensive, time-consuming, and diverts resources from our core business." 
• Professionals critiquing balance sheet constraints: "We must optimize capital allocation by moving product creation and strategies off the balance sheet at scale to remain competitive and compliant." 
• A family office owner on market expansion: "We're missing out on a huge opportunity. We must capture the value of Assetization before competitors do. But we lack the technological capabilities to move quickly." 

Financial Engineering-as-a-Service addresses these through scalable infrastructure that integrates with existing systems, capital optimization tools for creating and managing off-balance-sheet structures, and technology to transform traditional and non-traditional assets into investable products. 

Several types of providers are moving into this space: specialized platforms focused on structured products and derivatives, tokenization infrastructure providers enabling digital asset creation, custodians expanding into product structuring capabilities, and end-to-end platforms handling the full lifecycle from design through issuance and management. 

The Full Picture 

The report goes deeper on regulatory capital optimization, the originate-to-distribute model, tokenization infrastructure, and specific use cases from weather derivatives to fractionalized alternative assets. 

Whether Financial Engineering-as-a-Service becomes standard industry terminology remains to be seen. The underlying forces—infrastructure constraints, capital pressures, proliferating asset classes—are measurable realities that institutions must address. 

• Download the Report