2013 Technology Resolutions for the Buy-side
January 11, 2013
Beyond the usual New Year's resolutions such as to lose weight and exercise, asset managers should resolve to use technology to enable change and innovation in 2013.
Here is a list of six technology resolutions that buy-side firms should make in 2013. The list is focused on technology improvements that drive portfolio value, provide competitive advantage and allow asset managers to comply with the onslaught of regulatory reforms.
1. Pay greater attention to operational excellence in the back-office.
Industry analysis shows that operational improvements in the back office can contribute anywhere from 50 to 250 basis points in realized portfolio performance. So take the time to understand if outdated back-office systems are impeding investment performance. A recent SimCorp study found that almost 35% of respondents said they have no immediate plans to make technology improvements in the back office. This is a missed opportunity to make upgrades in areas such as collateral and cash management that could very well yield those basis points.
2. Invest in an "IBOR" (Investment Book of Record).
When multiple business units, or disparate systems, support a specific process or asset class, it is impossible to gain an accurate view on true portfolio positions. The risk of wrong decision-making on incorrect data is high.
A solid IBOR delivers numerous benefits by serving as a single source of truth and the common denominator for both front- and back-office users. With a single IBOR, buy-side firms gain a holistic view into assets and exposures.
3. Evaluate multi-asset class systems that accelerate time-to-market for new securities.
With the many competing demands for internal IT resources, investment operations groups often have to wait in a queue for support, and in turn become a bottleneck to portfolio managers trying to launch new products.
To promote greater user self-sufficiency, buy-side firms should evaluate a multi-asset class system that automates front-to-back office workflows on a single platform. Streamlining investment processes throughout the trade lifecycle on a single platform will accelerate time to market for even the most exotic instruments. Additionally, systems that focus purely on a single asset class such as derivatives lose a 360-degree view of the firm's assets and exposures across the entire portfolio.
4. Leverage funding for regulatory reforms for enterprise "make-overs."
With these reforms come opportunities to make changes that drive investment performance.
Regulations such as the 2010 Dodd-Frank Wall Street Reform Act and European Market Infrastructure Regulation will continue to profoundly impact the buy-side and prompt a total expected IT spend of $6.7 billion between 2011 to 2013.
If the buy-side looks at regulation in piecemeal, asset managers are missing the opportunity to unleash compliance dollars for an enterprise "make-over."
Legislation such as a Dodd-Frank, EMIR and the Basel Solvency II Directive are united by a common denominator -the need for an accurate view of exposures across counterparties, collateral and the underlying derivatives. These are capabilities that can only be provided by a solid investment book of record or IBOR. Buy-side firms must look at regulatory compliance, with a view to improving the enterprise architecture rather than creating a web of individual solutions regulation by regulation.
5. Realize that portfolio accounting matters.
Many buy-side firms are closer to insolvency than they realize.
What does the firm own? What are portfolios worth? How big are exposures? Answers to these questions are rooted in portfolio accounting and are key to managing a firm's solvency.
Despite this, SimCorp studies show that 56% of buy-side execs are not confident in the accuracy of their current accounting systems. Thirty percent say they can't calculate exposure in real time. Forty percent make critical decisions based on poor quality data.
With uncertain markets and stiff regulatory requirements, firms that evaluate and transform their accounting systems are the ones who will stay ahead of the competition.
6. Understand the implications of data management for client reporting.
It takes more than pretty pictures; get the data right.
Customized client reporting packages have the potential to be a key competitive differentiator for buy-side firms. However in today's disparate system landscape, data accessibility and data quality are two of the largest obstacles in generating up-to-date and accurate client reports.
Inaccurate client reports could lead to bad investment decisions and loss of client confidence.
Rethink disparate system landscapes that yield data silos. Focus on centralized position-keeping across all assets for improved data quality and greater data accessibility.
Whether it involves adopting an investment book of record, embracing regulatory reform or accepting that portfolio accounting matters, asset managers are advised to resolve to consider the impacts that technology will have on success in the New Year. Firms that have long taken a "wait and see" approach to outdated systems that haven't kept pace with the turbulence of the recent years will soon find themselves "watch and implode." A proactive, forward-thinking approach will well-position buy-side firms for 2013 and years to come.
David Kubersky is managing director at SimCorp North America.