Read article and learn about:
- A much faster time-to-market for new products and instruments
- A quicker response to the implementation of new regulations
- A more rapid, clear, and transparent client reporting
- A real-time overview of the exposure of all funds
- Optimized business processes and dramatically reduced operational errors
- Scalable operations that allow the company to enter new markets without significant new investments
About the author:
Cédric Le Moan is Head of IT & Operations Global AM at Edmond de Rothschild Asset Management.
From 2001 to 2007, he held various positions in the BNP Paribas group including Deputy Head for Information Systems Group at BNP Paribas Asset Management and heading information systems for the front office and risk management. From March 2007, he worked at BNP Paribas Asset Management Sgr Milan.
About Edmond de Rothschild Asset Management
The Edmond de Rothschild Group is an independent, family-owned group that specializes in private banking and asset management. Founded in 1953, the Group has been chaired since 1997 by Baron Benjamin de Rothschild. As at end-2013, it had €133.6 billion under management with 2,800 employees and 31 offices throughout the world.
Many investment managers balk at the prospect of system migration and the potential risk involved. This article draws on Edmond de Rothschild Asset Management's experience in moving to a state-of-the-art system. Topics examined include how to ensure a smooth migration process and how a front office based on an integrated investment book of record (IBOR) can be used to achieve best-in-class operating performance.
The crucial importance of accurate and complete investment position data, which can only be provided by an investment book of record (IBOR), has topped the agenda for investment management firms. Why? They see changes challenging their ability to deliver such information when and as required to the front office.
Changes are numerous, including among the most important: operations, whether outsourced or in-house, are becoming more globalized; the range of investable securities continues to expand; holistic views of risk, cash, and securities positions are turning critical; and regulatory changes are mounting.
Edmond de Rothschild Asset Management is one of those firms that have succeeded in transforming these challenges into a competitive advantage. Key to this has been our ability to ensure an agile and secure adoption of a state-of-the-art investment management system with a front office-based IBOR solution.
This article focuses on addressing the following key issues:
- Why and how we moved to a state-of-the-art system with minimum risk;
- How we avoided the worst scenario and achieved the best solution;
- How we run an investment management system based on an IBOR;
- What were for us the tangible business benefits of migration.
Factors behind the choice to migrate
With six global investment hubs (in France, Germany, Hong Kong, Luxembourg, Switzerland, and the UK), the Edmond de Rothschild Group is a fast-expanding multi-specialist investment firm. It builds on recognized areas of expertise such as European and US equities, corporate debt, multi manager, overlay, asset allocation, and quantitative asset management. The group’s asset management division had close to €45.5 billion under management at end-2013 and employed 550 including 100 investment professionals.
For us in the Edmond de Rothschild Asset Management division, our priorities to achieve the rapid business growth objectives we have set ourselves include:
- The capacity to grow our operations globally without system constraint;
- The ability to anticipate and absorb global business changes;
- To manage and administrate all asset classes;
- The capacity to control IT operational costs;
- The ability to mitigate operational risk; and
- To offer our institutional clients full transparency.
In order to meet these objectives, first formulated in 2008, there were a number of factors that prompted us to embark on finding a new software solution. First, the legacy system we then had in place was making it hard to track and absorb all the new regulatory changes and procedures emerging on the market.
Second, the old system prevented us from maintaining the growth in assets we wanted as it failed to meet the expanding risk management requirements associated with greater regulation. Our aim was to be able to follow in real time all the risk issues with the same data as used by the front and middle offices in relation to all the funds under administration.
The third consideration was client support and reporting. The type of institutional clients we cater for demand the kind of highly customized and sophisticated reports that our legacy system was unable to deliver quickly and efficiently.
Finally, in addition to the regulatory, risk management, and client support factors, the system we had was incapable of effectively managing the expansion in international growth we had in our sights, which demanded a significant promotion and development of production tools and process efficiencies.
With an integrated systematic approach based on automation, as opposed to disparate data sources and fragmented manual processes, it is far easier to manage the workflows across business lines, as well as controlling costs.
Agile and sure migration with minimum risk
Taking these factors into account, we chose to replace our legacy system with a fully integrated solution – SimCorp Dimension – incorporating a built-in IBOR, support for an array of asset classes, integrated risk/performance analytics, and the highest degree of automated investment processing available. For us, it was vital that the solution focused exclusively on asset management capabilities: Full processing, instrument, and country coverage.
One very important auxiliary factor was risk mitigation. Starting cautiously in just one country, we went on to set up a very strong global framework focusing on a well-defined and managed IBOR as a central repository for accurate and high-quality data and instruments. As we went along, we found that our operational risk was sharply decreased as all involved in the operation had access to the IBOR’s same data repository. Having started in Paris with a strong operating platform, it was just a question of extending the process to our other locations like Frankfurt, Geneva, Hong Kong, London, etc.
As well as the risk factor, other crucial factors were flexibility and speed of adaptation. Starting in 2009, the first phase of the project implementation took around one year, followed by successive phases of up to six months in duration. Here business change management (BCM) played a pivotal role in the success of building on the framework by incrementally adding processes, functionality, and complexity in an agile and flexible way.
Avoiding the worst and achieving the best
In view of our programed rapid expansion globally, we saw the importance of industrializing the process as much as possible. One way to achieve this was to increase the level of automation. With an integrated systematic approach based on automation, as opposed to disparate data sources and fragmented manual processes, it is far easier to manage the workflows across business lines, as well as controlling costs.
One key competitive advantage for special consideration was speed of execution. The modular structure of the operating model we chose to adopt empowers us to very rapidly adapt to emerging product and client demands. It also allows the organization to quickly roll out a new product, or meet a new client request.
A case in point is the pending launch of Edmond de Rothschild’s first infrastructure fund, in which the speed of execution and flexibility provided by the system’s built-in IBOR play an integral role.
We also need to rely on the system to administer an increasing number of portfolios. The growing volume of net asset value (NAV) positions calls for a very rapid and effective method of calculation that is transparent for the client. Providing fund managers with a global real-time view of all fund components under management to ensure swift buy-and-sell decisions was another prime consideration.
Running an IBOR-based system
Our adoption of a state-of-the-art investment management system with a front office-based IBOR solution meets all these requirements. The platform is based on an integrated financial software solution, which features the following functional applications: front office; middle office; risk management; performance calculation; and client reporting system (see Figure 1). At its core is an IBOR data repository run by SimCorp Dimension.
The IBOR-based system relies on a single point of data reference, processing, and client reporting system that all the organization’s business lines share. This ensures an open and transparent working environment, which in turn guarantees reliable data, precise analysis, and high-quality client reports. This integrated solution ensures that the same uniform quality of investment, services, and risk management is applied across the board.
All the business departments work on the same synchronized data channeled through a single data management team. This helps control operational costs. The system provides front-office capability ensuring seamless processing reliability, efficiency, and implementation. It enables us to drive our global expansion, develop financial instruments, run a flawless risk-control system, and provide institutional clients with the type of top-quality services they demand.
Assessing the tangible business benefits
Our front office-based IBOR solution provides us with the speed, accuracy, and quality of data we need for good investment decision-making. With an IBOR at the core of the operations, each fund manager in each country works on the same basis, with the same workflow, with the same data, and at the same time.
If, for example, the front office sends an order to the markets, all the events are in real time. This is crucial for business transparency, because the fund manager, the risk manager, and the middle officer are all party to the same information at the same time. With a front-to-back solution based on an IBOR, we can be sure that all our managers share accurate position-information updated in real time, have a consolidated view of positions across securities and cash, and benefit from an independent, accurate, and up-to-date overview of positions.
For the global organization we are building, the IBOR is proving an amazing benefit. Why? Because the IBOR enables us to mobilize our organization throughout each of the countries in which we are operating. Without the global reach engendered in our IBOR solution, it would have been very difficult to set up the new organization in terms of operations on an international scale. Mapping all of the processes orbiting the IBOR enabled all in the organization to pull together in the same direction.
These are precisely the reasons why we think we have successfully migrated to and indeed capitalized on a state-of-the-art system in terms of a front office-based IBOR solution. We now encounter no problems in managing assets fluidly and effectively with reconciliation conducted on a global scale between countries. If, for example, our Paris office is closed for a national holiday, the Hong Kong office can do the same job as Paris because they use the same processes and have access to the same central data repository.
With an IBOR at the core of the operating platform, the front office has the necessary confidence in the accuracy and quality of data that is deployed for investment decision-making.
Summing up the benefits
In today’s highly competitive financial environment, choosing the right operating platform is what will separate the winners from the losers. However, the potential risks and resources involved when considering a move from a legacy system to a state-of-the-art platform overwhelm many investment managers.
With the industry grappling with business-critical issues, such as rapid changes in regulatory requirements, expanding asset classes, and client satisfaction, deploying an integrated operating solution that is agile and safe enough to accommodate these issues is the guarantee of a successful client-oriented business strategy.
We at Edmond de Rothschild Asset Management have sought to overcome these challenges by adopting and implementing an operating solution that is equipped to deal with them, absorb them, and turn them into competitive advantage.
With an IBOR at the core of the operating platform, the front office has the necessary confidence in the accuracy and quality of data that is deployed for investment decision-making. The IBOR solution has freed up our fund managers to fully focus on generating the superior returns that our institutional investors demand.
To summarize, an integrated front office based on an IBOR includes for us the following advantages:
- Gives fund managers accurate position-information updated in real time;
- Provides a consolidated view of positions across both securities and cash;
- Depicts an independent, accurate, and up-to-date overview of positions;
- Creates genuine competitive advantage in terms of improved process efficiencies, resourcing, and other real business benefits.