Investment management firms need to maximize their technology initiatives as they balance the demands of growing businesses with stagnant budgets, notes a recent SEI study.
The asset management industry is going through a transformative period dominated by two conflicting trends viz.: growth and uncertainty, notes a report titled “Reinventing Buy-side infrastructure” published by SEI in collaboration with TABB Group.
Technology as value enabler
Buy-side firms have to face challenges from growing assets under management, investor demands and regulatory requirements.
The report points out that the opposing desires to grow revenue and reduce overhead are pressuring the investment management firms’ IT departments to give more value to the business as reporting requirements increase. The following chart highlights the growing importance of reporting:
The report notes the investment book of records (IBOR), a new addition to the industry lexicon, provides investment managers with a timelier, holistic view into investment data across the entire organization. They face pressure to have a single golden copy that centralizes intra-day positions across all asset classes that can be used to feed both the front and back office.
The report highlights that there is a uniform view that efficient data management would facilitate business growth at an affordable cost. The following exhibit highlights the reporting initiatives breakdown:
The report points out that data around the company is the oil that’s going to run the next generation of businesses. Hence firms that can embed data fluency throughout the enterprise, seeding clean and consistent data throughout the pre and post-trade life cycle will have an advantage over its peers.
Re-emergence of technology projects
The SEI report points out for hedge funds, compliance with Europe’s Alternative Investment Fund Managers Directive (AIFMD) brings requirements similar to many of the new regulatory obligations imposed under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
The SEI report points out that weaknesses in technology and processes are quickly being exposed by the combination of increased regulation, investor demands and fund/portfolio growth, creating both an urgent need and a tremendous opportunity for investment managers to reinvent their infrastructure. The following graph captures the technology budget drivers in 2014 for buy-side firms:
The report notes service provider selection can be a drawn-out experience. As highlighted in the following table, all investment management firms desire a good working relationship with their providers such that they can consider them partners and not merely vendors:
The report highlights that there is an increasing trend towards outsourcing, particularly with regard to middle and back-office solutions. The outsourcing will create streamlined processes and operational efficiencies, freeing up investment managers’ IT and operations teams to focus on adding proprietary value.