SimCorp, a leading provider of investment management solutions and services for the global financial services industry, today announced the results of a new TABB Group study, entitled ‘The Buy-side Legacy IT Hangover: Finding the Cure for Alpha, Compliance and Growth Impediments’. The survey explores the challenges to growth that Global (non-North American) firms experience based on their choice of IT strategy and follows from an identical survey conducted among North American firms in February 2016.
According to the study, there are three different IT infrastructure approaches that buy-side firms adopt. Thirty four percent of non-North American respondents in the study have opted for an integrated solution, which could include an Investment Book of Record (IBOR). Across the North American firms surveyed earlier this year, 30% had an integrated solution in place.
Almost 30% of non-North American firms – compared to 28% in North America – continue to rely on legacy systems, in many cases leading to inefficiencies in the management and trading of assets. Lastly, 27% of these same firms prefer the “best of breed” approach, where they source solutions from different providers based on the specific functionality they require, compared with 24% of North American firms.
Similar to the findings of the North American survey, the study showed that manual processes remain a barrier to efficient alpha generation. Ninety percent of firms stated that they have to resort to manual processes due to inefficiencies of their IT platforms, leading to data and reconciliation errors. Furthermore, the survey shows that trade delays caused by inadequate technology could account for opportunity costs of up to 50% of revenue.
The study also highlighted challenges faced by buy-side firms with pre-trade compliance. According to the findings, over half of investment management firms experience technical problems in executing pre-trade compliance checks, exposing them to avoidable financial and reputational risk. Of those, 40% of portfolio managers cited lack of systems integration as the main cause resulting in erroneous data in front office systems. In North America, this figure amounted to 50%.
Other findings showed that 58% of non-North American firms face challenges setting up operations in new geographic locations and new asset classes, compared with 66% of North American firms.
Both surveys showed a high correlation between difficulties experienced in establishing operations in new geographies and asset classes and operating on a legacy platform.
Dayle Scher, Senior Analyst at TABB Group, said: “As investment organizations and their clients continue to invest in new jurisdictions and asset classes, the supporting IT infrastructure must be able to support growth and scale. Added to this the growing regulatory pressures that are emerging globally means those who choose to implement integrated investment management solutions will be those that can best navigate an increasingly competitive environment.”
Adding to this, Martin Engdal, Director, Global Product Marketing at SimCorp, commented: “For many firms, legacy investment management systems continue to be the cause of delays in setting up new geographies and instrument types, running pre-trade compliance checks, and front office staff spending time on manual processes and error handling rather than alpha-generation. These findings show that an integrated solution that utilizes a single data repository is the most effective way to avoid all these challenges facing investment management firms.”
The information in the study was collected through interviews with 65 firms across multiple regions. The respondent breakdown of the June 2016 TABB Group study consists of: 13 UK asset managers, 23 asset managers from continental Europe, and 29 asset managers from other non-North American markets, while the February 2016 study consisted of 50 North American asset managers.