Front office drives STP from portfolio optimization to accounting

Client story

Front office drives STP from portfolio optimization to accounting

MEAG has from its creation demanded an operating model built on best-practice operational processes, applying the latest technology, and offering the flexibility required to adapt to the growth and development of the business over time. Implementing the full SimCorp Front Office Suite including compliance and fixed income performance attribution is the latest achievement. The vision of 100% seamless STP has been the key driver.

Founded in 1999, MEAG is a major asset management force in the European financial sector and the asset manager for Munich Re and ERGO. One of the tasks when spinning off the new company from Munich Re and ERGO and creating MEAG was to replace the legacy systems that existed before MEAG became a separate entity. The idea was to enlist a new portfolio management solution that was based on the latest technology to achieve a high degree of operational efficiency. SimCorp’s portfolio management system was chosen as one of the main pillars of the new system architecture.

At that time, going live with a new organization and meeting the demands for a competitive time to market were the main challenges. The time pressure meant that the full scope of the business architecture had to be developed over time. Therefore, the system had to offer a tremendous amount of flexibility to be able to phase in new functionality, while ensuring that critical business processes continued running. The original SimCorp solution offered what we today call the investment book of record (IBOR), the platform foundation for MEAG’s portfolio managers, which was far more than the previous legacy systems had offered.

“The Green Field approach helped us stay focused on the future platform rather than dwelling on the past legacy state. The flexibility of the SimCorp solution enabled us to achieve our goals and deadlines”, explains Claudio-Peter Prutz, Head of Digital Business Services and Organizational Development, while adding that “SimCorp gave us the opportunity to build our platform as we saw fit for our business. They took a best-practice-based, yet customizable, approach to the implementation process. The team working with us were qualified, dependable consultants and developers, collaborating with us to determine realistic goals and appropriate decision criteria throughout the execution.”

At MEAG, the IT platform has always been approached from an efficiency perspective. It is about tackling the required functionality and data with minimum complexity and number of interfaces, while keeping the highest level of scale and ability to conform to future business directives. “Today, we call it a single platform approach, but even back then, we had an overall IBOR-approach in mind,” says Claudio-Peter Prutz, Head of Digital Business Services and Organizational Development. Among the continuous expansions of functionality during the past years, a major effort was the integration of fund accounting functionality in 2005, which was not part of the initial scope due to separation of the accounting process from the investment process.

The last major operational platform initiative at MEAG entailed the renovation of their entire front office setup. “My vision for MEAG’s future use of SimCorp Dimension is 100% seamless STP from portfolio optimization to accounting. After optimizing the portfolio creation and making the pre-compliance check, orders will automatically be generated, sent to the trading platforms, best executed, confirmed, settled, and booked,” explains Claudio-Peter Prutz, Head of Digital Business Services and Organizational Development, MEAG. To move towards this vision, we needed a best-in-class front office solution. It was natural to investigate whether SimCorp’s new Front Office Suite would meet our needs since we already had the SimCorp Dimension system in place including its original portfolio management solution.”

“My vision for MEAG’s future use of SimCorp Dimension is 100% seamless STP from portfolio optimization to accounting. After optimizing the portfolio creation and making the pre-compliance check, orders will automatically be generated, sent to the trading platforms, best executed, confirmed, settled, and booked.”

Making the business case for SimCorp’s Front Office Suite

At MEAG, it was decided the business case to implement SimCorp’s Front Office Suite would be determined by the investment performance improvement that could be achieved. The expected increase in investment alpha was calculated by the following assumed metrics: Portfolio management estimated that 1bp alpha increase would be provided by the achieved fixed income performance attribution (FIPA) information and another 1bp alpha increase would be gained by speeding up time to market through achieving STP. MEAG’s managing directors demanded a stress testing of those assumptions. The result of the stress testing was that even the worst-case scenario would provide an overall positive outcome. The decision was that the mid-scenario (1/2 bp) was the basis for the business case.

Claudio-Peter Prutz, Head of Digital Business Services and Organizational Development, explains that it was natural to investigate whether SimCorp’s Front Office Suite would meet MEAG’s needs since the organization already had the SimCorp Dimension system in place, including its original portfolio management solution.

A market-leading front office in one system

“We were already using SimCorp’s portfolio management solution, Asset Manager, and have now implemented the rest of SimCorp’s Front Office suite, Order Manager and Compliance Manager, as well as fully integrated functionality for fixed income performance attribution (FIPA). “This project required a deep dive into the implementation and renovation of our entire portfolio management activities and we ended up with a totally new and improved user experience. Today, our front office relies entirely on this system and we have retired other tools used in the past,” explains Claudio-Peter Prutz, Head of Digital Business Services and Organizational Development. We perform compliance on a pre-trade basis and our key ratios are designed according to our Group standards.

Among the accomplishments from implementing SimCorp’s new Front Office Suite, MEAG has achieved:

A consistent core system for portfolio management
A coherent system for compliance controlling
Global governance alignment
A central dashboard with standardized functionality and quality-assured data
Reduced operational risks
Global availability of local best practices
Automated calculation of complex and changing legal and mandate compliance requirements
Provision of relevant key ratios
Ability to focus more on market engagement and less on administrative tasks
Provision of mandate- and portfolio-specific benchmarks

Next steps – building on a one-system solution approach

“Building on the achievements already made, we are digitally connecting SimCorp Dimension to trading facilities and automating the corresponding processes to gain momentum on the platform. The flexibility and transparency of our solution materialize more substantially with each trading platform added and with each financial product integrated”, explains Claudio-Peter Prutz, Head of Digital Business Services and Organizational Development, adding that “each leverages the standardized functionality and processes in place for control, performance measurement, reporting, audit, and accounting.”

Throughout the years, we have observed the market thoroughly and, from time to time, we go into further analysis of specialized solutions where it seems that requirements are ready to use out-of-the-box. However, most of the time, these out-of-the-box functions are just the easiest way to deliver a solution to a problem that has not been analyzed in detail. From the outset, we have taken seamless process integration and total cost of ownership into account and no solution has been able to compete with a fully integrated solution like SimCorp Dimension.

We have made the efforts required for maintaining an integrated architecture and will place even higher emphasis on this in the future. We are concentrating on the business value of the entire investment solution platform at MEAG, and we don’t want to spend time and money on separated functional islands that must be integrated and reconciled all the time. One golden source of data is key and that is what we have with a single platform approach.

Quick facts

Name: MEAG
Headquarters: Munich, Germany
Industry: Asset management
AUM: EUR 252 billion (as at 30/9/2017)
Established: 1999
Website: www.meag.com

About Claudio-Peter Prutz, Head of Digital Business Services and Organizational Development at MEAG

Prior to the founding of MEAG in 1999, Mr. Prutz developed its IT design and strategy. In addition to building up the company's infrastructure and defining its outsourcing concept, he has led numerous key projects for MEAG. Mr. Prutz represents MEAG on several Group-wide Munich Re committees and has more than 30 years' experience in the financial industry, including over 15 years as an IT executive.

About MEAG

MEAG runs best practice asset management for Munich Re and ERGO. MEAG is present in Europe, Asia, and North America, and also offers its extensive know-how to institutional investors and private clients. MEAG currently manages assets of around EUR 252 (Stand: 30. September 2017) bn.