Digital Assets Report

Newsletter

Like this article?

Sign up to our free newsletter

Reinventing Buy-side Infrastructure: Buy vs Build has given way to Partner or Perish

By Ross Ellis (pictured), SEI – The asset management industry is going through a transformative period dominated by two somewhat conflicting trends: growth and uncertainty.

Revenue growth and operational efficiency are always primary business drivers, but paired with flat budgets and growing regulatory requirements, today’s asset managers often face difficult decisions about future planning.

Business growth is bringing additional complexities across the spectrum of buy-side firms: the client base is extending to include global pension funds and sovereign wealth firms, while the number and variety of managed accounts and investment vehicles are expanding. Meanwhile, the strategies within a firm are broadening to include liquid and illiquid assets, fundamental and quantitative, multi-asset class and international.

Yet, uncertainty becomes a self-fulfilling prophecy when it discourages necessary investments for growth, and outdated legacy systems often do not meet today’s needs or tomorrow’s promise. Workarounds are time consuming, and ad hoc reporting is an insufficient and suboptimal long-term solution. Assets under management, investor demands and regulatory requirements are still growing, but budgetary immobility requires more efficiency from technology initiatives.

Now more than ever, investment management firms need to maximize their technology initiatives as they balance the demands of growing businesses with stagnant budgets.

Value and customization

Reporting and data remain critical priorities, but today’s markets demand greater customization capabilities and reporting tools to stay relevant. Obviously, both of those priorities take resources to research, buy/build, maintain and operate. Managers are taking a hard look at how they can amplify the value they add to some processes and reduce their involvement in areas where they add little value or where service providers offer solutions that are better or more cost-efficient.

However, the choices and solutions are hardly homogeneous and outsourcing services are not a one-size-fits-all business proposition. Buy-side firms may likely retain control of portfolio and risk management areas, even if outsourcing the systems and processes. Some managers outsource complete chains of functions, others choose individual functions.

Technology projects re-emerge

Although regulatory requirements continue to grow, temporary breathing space in the immediate calendar allows buy-side firms to pick up projects shelved in the economic downturn of 2008 and that had been overshadowed by regulatory emergencies and decimated budgets. Everywhere there are reporting requirements. Investors demand more transparency and interactive portfolio solutions; global regulatory and compliance reports turn ad hoc projects into long-term maintenance items; and the ability to grasp the “data nettle” and transfer Big Data into insight and intelligence for portfolio managers, traders, operations staff and investors alike, creates a differentiator as they seek a competitive edge.

Although long-term operational efficiency is important, the key driver in determining budgets is the 12-month revenue horizon. Revenue generation is key, yet weaknesses in technology and processes are quickly being exposed by increased regulation, investor demands and portfolio growth, creating both an urgent need and a tremendous opportunity for investment managers to reinvent their infrastructure. As buy-side firms progress along an infrastructure upgrade life cycle, it is a trend that it is expected to continue well into 2015 and beyond.

Proprietary value

An increasing trend toward outsourcing, especially with regard to middle and back-office solutions, creates streamlined processes and operational efficiencies, freeing up investment managers’ IT and operations teams to focus on adding proprietary value. A manager’s bench strength is a primary driver behind middle- and back-office outsourcing. Asset managers may choose to outsource corporate actions or collateral management, for example, to an administrator or bank with a team of experts rather than rely on a single expert in-house.

An array of available service provider solutions leaves the buy side almost spoiled for choice, yet many struggle with the trade-offs of long-standing versus emerging technology, best-of breed versus integrated solutions, and which providers will prove to be the best long-term partners as they grow and evolve. Pressure also remains on areas that do not directly generate revenue to scale efficiently, and keep up with the growth, speed and breadth of demand for data from investors and regulators.

Operational capabilities key

Given the demand for growth amid uncertainty, and the desire to add value across the board, operational capabilities have become key to investment managers’ competitive advantage and business success. We believe the current environment creates an opportunity for managers to reinvent their infrastructure by strategically partnering with service providers that not only support their current business goals, but provide additional or new functions and activities, which will support future objectives as they expand and extend their service offerings.

Ross Ellis is a Vice President at SEI and leads the Knowledge Partnership at SEI’s Investment Manager Services division. To request the full paper, visit www.seic.com/ReinventingBuysideTech.

 

 

Like this article? Sign up to our free newsletter

Most Popular

Further Reading

Featured