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The top trends in Investment Operations

Recently our Managing Director and EVP of SimCorp North America Jamie Corrigan, was interviewed by Citisoft on the industry’s move from software-only to a serviced model, talent trends, data innovation, ESG – topics that are top of mind for institutional investors around the globe. 

Jamie Corrigan

Managing Director and Executive Vice President at SimCorp North America

There has been a marked trend of vendors in our industry moving from software-only to a serviced model. What do you think is driving this shift? 

This is a good question and one we’ve given a lot of thought to. When we look at market trends, we try to talk to our clients and the buy-side community to understand their perspective. To that point, we recently distributed a survey with InvestOps where we found that 42% of buy-side leaders are outsourcing operational processes in order to focus on their core business and other differentiating activities. Given those results, this trend is clearly top of mind for the industry. 

In terms of what’s driving this, I think it's pretty simple: investment firms want to invest. For functions like middle office accounting and data management, there's now a robust network of technology providers that have compelling offerings. And I think when you look at companies like us and our competitors, we invest a lot in building innovative technology to drive high levels of automation. There's a capability that's been built up now where tech providers can do this type of work in a more automated fashion than some asset servicers could previously, where they had to solve for certain challenges by adding more headcount. 

Overall, I think this shift reflects a connection between the buyside realizing that there's a lot of non-core work being done and the technology and servicing community innovating and automating. I will also say we've seen the conversations around outsourcing pick up during COVID. I think seeing work accomplished in a remote environment helped managers realize that outsourcing is a real option. If I look at the conversations we have now versus pre-2020, the topic of us doing the work for our clients has increased dramatically.  

The talent war is dominating headlines right now—do you think that's playing into an acceleration of this trend as well?

If you look at pensions and asset managers, which are geographically diverse, by having access to a larger pool of talent by partnering with tech enabled service providers, they can clearly benefit from that.  I think that when you have that kind of shortage, you're definitely looking for your partners to help you do more of the work. In those cases, it has absolutely played into the trend.  

I think the financial services industry is super attractive because of the complexity around it, but there’s no doubt that there is difficulty finding technology and operations talent right now. When we were building our services out, we really spread it out globally. We have operations centers in Toronto, Warsaw, and Manila, partly because you get the 24X7 operating model, but also because we needed access to talent in various markets to run these types of businesses. 

Another simplistic way to look at why the talent market is shifting is because people are naturally inclined to want to work in revenue-generating, client-facing roles. If you think about the middle and back office at an asset manager as a cost center, that is flipped at a solutions provider.  

SimCorp introduced a new outsourced accounting option near the end of 2021—can you tell us about how this is being rolled out and received by the market? 

Sure—this is something that came out of conversations with our customers where we saw a lot of demand for outsourced accounting. Our industry survey reinforced this and showed us that the buy-side resoundingly wants to leverage outsourced solutions more than they have in the past. If we pigeonholed ourselves as a software-only provider, we are going to miss out on a lot of opportunities where clients don't want to acquire software.  

We take a lot of pride in the innovation and the investment we make in SimCorp Dimension as a platform and the automation that it drives. Given that, we felt that our unique selling proposition was to extend that highly automated straight-through-processing capability into delivering accounting reporting with fully validated and reconciled data. We do the accounting process, and we review and verify all the accounting figures in each portfolio, and we can do this end-to-end globally with timeliness and accuracy. 

Because of the automation that we've built, we felt that was an interesting way to go to market, and we’ve received really good feedback. We’ve now signed three customers that are in the process of going live. Our pipeline is also building dramatically, and as you can imagine, we're now having conversations with people that we wouldn't have had before. The straight-through-processing automation and instrument coverage are two differentiators for our offering and I think that’s really compelling to our market.  

The data marketplace is another area of industry innovation, with new cloud-enabled solutions and integrations making analytics more accessible, flexible, and integrated. How do you see this changing operating models? 

I think the cloud just fundamentally is shifting how people think about operating their businesses. We've seen and had conversations with clients and other providers where the ability to leverage the cloud to spin up capacity when you need it to do processing throughout the day is really a game changer.  

Pivoting back to data, in our InvestOps survey, 92% of operations executive surveyed said they would consider a managed data service. I think that's for many of the reasons we talked about but, in particular, the challenge of finding talent that understands the data considerations necessary to support increasingly complex investment strategies. We've taken this approach where we've hired people who understand how instruments are traded and settled and managed, and we put those people into our advisory business. We’ve overlayed that with a data as a service model which removes a massive headache for firms that are looking to invest in the new asset classes.  

At the same time, there is this convergence of cloud capability and being able to access analytics in the cloud; it's amazing how many industry tools are out there that are free access. Cloud is really changing the industry from this closed model to an open ecosystem. This gets to the core of success for any solutions provider:

You have to get the data right and then allow people to access it via partnerships and APIs. That's the future.

James Corrigan, Managing Director and Executive Vice President at SimCorp North America

Onto another hot topic—how is SimCorp thinking about managing evolving ESG regulation considering the need to manage and enrich various data types in different markets?  

As this topic comes into focus in the US and Canada, this is probably one of the benefits of being a European company with more mature regulation around ESG. We had 27 customers last year sign up for our ESG capability, which is effectively us sourcing ESG data and then presenting it in a way where clients can look at their portfolios and ESG ratings. The impetus for that was SFDR compliance and I think we got really good at figuring out what works for our customers in Europe.  

What we learned from that was the importance of sourcing ESG data, integrating it into the investment process, and reporting on it for clients. Even though the US and Canada are less mature in terms of standards and regulation, we’re seeing rapid growth in this area and some really innovative companies emerge. One such company I’ve been following is Clarity AI—they are leading the market on these challenges. It helps that BlackRock and State Street have been getting out in front of this trend and that we’re all generally inclined to be more thoughtful about investments than we were in previous years. 

Ultimately, with ESG becoming mainstream, the ability to scale and drive business critical outcomes is now essential. Central to this is addressing the status quo of inefficient ESG data management in light of mounting regulatory pressure—both realized and proposed. The question investment managers must ask is: What harm are we doing to the firm’s success, as well as to people and the planet, by not taking action now? 

Speaking of ESG, SimCorp recently launched a new website that highlights some of the work you’re doing in terms of sustainability on the corporate side. Can you speak to some of those initiatives? 

I think that COVID probably pushed us to re-think some things that pertain to SimCorp’s responsibility as a company. One of the most notable things we’ve re-thought is corporate travel. Since we reduced travel so drastically during the pandemic, it really made us think about traveling responsibly. Reducing our carbon footprint and supporting our clients in terms of their own ESG initiatives became one of our main priorities.  

Another thing we’ve been giving thought to in recent years is the diversity of our workforce. We operate in 28 locations and have 67 nationalities amongst our 2000 employees. Our ambition is to make our company a place for our employees and clients and the societies in which we operate to be proud of that. We're driving a diversity, equity, and inclusion agenda that increases our percent of employees from diverse backgrounds and helps elevate the careers of diverse staff. We also want to make sure that our employees have meaningful work and that they have good work life balance. I think we've always been a flexible company in terms of where people work, and COVID has codified that. Something that is new for us is the launch of our ESG fund which sets aside an annual budget for SimCorp to contribute to employee-selected initiatives in their local communities. In 2021, this included funding for a playground, sports donations in low-income areas, and donations to help people with autism secure meaningful employment. 

We love to hear about these initiatives as it’s something that’s a priority for us in recent years as well. With that, any closing thoughts on ESG, cloud, services, or anything else? 

ESG, managed services, and cloud are really top of mind for us and we're excited for the direction the industry is headed. SimCorp is a 51-year-old company now that's remained independent, which is pretty unique. Our strategy is oriented around making sure we continue to stay independent and grow and do that in a way that evolves into the industry.  

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