• Tabb Group data: 49% of buy-side traders cite regulation as the most significant anticipated change to operations going forward.
• 42% of investment managers indicate they are still in the preliminary stages of determining the best way to comply with local rules.
• Top 15 OTC derivatives dealers intend to spend almost $675 million on technology in 2010/11 to prepare for Dodd-Frank alone.
With increasing demands for operational transparency, improving risk management and staying abreast of regulatory developments, the technology used to manage these functions has become a key focus for fund and asset managers. Managers are recognising the necessity to update or employ new management systems to increase efficiency of their operations and compete for client assets.
Published today, the Clear Path Analysis report ‘Fund and Asset Management Technology’, addresses the role that technology can play in improving the management of specific functions for hedge fund, private equity, traditional fund managers and those serving DC pension schemes.
Sylvain Privat, Product Manager, Buy-Side at Misys Sophis comments: “With regulators increasingly applying pressure from all corners of the globe, buy-side participants face growing demands to produce relevant reporting and implement risk controls that are both cost effective and sustainable. Overwhelmed by pressure from investors, as well as the uncertainty created by the current influx of regulation, such as Dodd-Frank, EMIR, MiFID and BASEL III, investment managers are stuck between a rock and a hard place.”
“Impending financial reform generates a level of uncertainty, but can be seen as either a threat or opportunities. By improving the technological infrastructure of a firm, investment companies can more easily control costs, manage risk and enable thoughtful decision making to ensure firms are able to capitalise on new business opportunities as they arise.”
Privat continues: “The buy-side is notorious for being the most nimble of all market participants, able to react to changing fundamentals and making decisions on behalf of their investors to accomplish gains, through a variety of strategies and asset classes. However, with imminent changes threatening their lean operational structure, asset managers will soon share the weight of unintended operational consequences that to this point have only impacted the sell-side. To date, many buy-side participants have operated under legacy systems or processes that do not leverage the latest technology. As new regulations take place, these same participants will be forced to evaluate and invest in their processes.
Pressure from regulation, investor due diligence and operational risk control is pushing investment firms to find better ways to manage data. Now, more than ever, data management is central to the investment managers’ day to day business operation argues Graeme Condie, Director, Data Management & Analytic Solutions Strategy at DST Global Solutions. Key data and information is found throughout an asset management organisation but nowhere is it more critical than the middle office.
Discussing the area of data management, Condie suggests: “Over the past decade, data management has grown in importance with a concerted effort across the industry to solve the reference data inconsistency. Vendors have identified this opportunity and offered solutions that help create the ‘gold-copy’ of reference data that is utilised across internal/external systems, infrastructure and analytical engines.”
“Now, an even more pressing data management challenge faces the industry. Stakeholders, both internal and external, are demanding more information, to be delivered quicker and presented bespoke to the individual. This can be seen as the ‘Middle Office Data Crunch’. Increasingly, the middle office is viewed as the central point for all relevant information and is being asked to facilitate management, consolidation and delivery of business critical data.”
In terms of how the sector has developed, Condie adds: “Growing complexity in investment products has resulted in the emergence of complex system infrastructures and architectures derived from individual best of breed solutions to manage, analyse and support new investment strategies and assets. This approach has resulted in asset managers renting, owning, building and subscribing to a plethora of systems and solutions covering the back, middle and front offices. Some firms have opted for single solution architectures; however, this approach often fails to fulfill the requirements of all stakeholders.”
“Best of breed system and solution fragmentation is magnified by geographical dispersion as global businesses have grown through acquisition and market expansion. Typically, solution architecture has not followed in support of this and disparate operational hubs exist. This creates an issue when it comes to trying to understand, control the business and provide required information to regulators. Fragmentation, whether by system, geography or both, has created significant operational issues and risks, including higher costs, duplication of effort, and lack of operational control.”
Following on from the recent crisis and scandals, investors have increased awareness of operational and business risk. Being able to prove that as an asset manager you fully understand your business, the key risks to manage, and your investment process can only increase chances of success.