CXO: Think local – act global

The global investment management industry faces many challenges. In this recurrent CXO Corner relay column, we ask top executives to point the way ahead, sharing their views and best practices for meeting the challenges.

Journal: Thank you for taking over the CXO Corner relay from Michel Bois, Chief Information Officer and member of the Executive Committee at CNP Assurances in Paris. To begin, could you tell us a little about your background before joining SimCorp as CEO in 2012?

Klaus Holse: Before joining SimCorp, I have held a number of executive positions at global software companies, most recently as Corporate Vice President in Microsoft, responsible for its activities in Western Europe.

Journal: And now as the CEO of SimCorp, you must be happy to see positive analyst projections for both investment management industry AUM and IMS spend. In this environment, what do you see as the key challenges facing the investment management industry?

Klaus Holse: If we look at the large institutional buy-side firms, our client universe, we have for a while seen a market increasingly faced with regulations, cost pressures, and demands for higher profits. What is also becoming evident is that it is more and more clearly developing into a global industry. At the same time, we see companies pursuing new avenues of growth and for many that brings them to new geographies. This means that they will be looking to extend their capabilities to handle the new requirements that come with global expansion. So yes, the investment management industry faces a number of different challenges, and it is our job as an IMS vendor to support asset managers overcome these hurdles – from an IT perspective at least.

...the investment management industry faces a number of different challenges, and it is our job as an IMS vendor to support asset managers overcome these hurdles – from an IT perspective at least.

Journal: In your own role as CEO of a global company and serving an increasingly global investment management industry, you must also experience the challenges of globalization – within the organization as well as with regard to competition and client demands. What do you see as the best way to meet these challenges?

Klaus Holse: On the internal side, a global company can be many things, from a loosely coupled network to a tightly integrated organization. Most investment managers will find there is a need to be well integrated, which means that it is vital to ensure that you are all on the same page across the global organization despite serving different local markets with special local demands. This puts emphasis on aligning the organization around common goals and common processes. At SimCorp, we share this need for alignment and use many different approaches in our communication to ensure this. Just recently, we held our annual corporate kickoff, where we gather management from the entire global organization to set the direction and get everybody aligned on our overall strategic goals.

Journal: And externally - what about competition and client demands?

First of all, it is about being able to meet the expectations of your clients. Each client is in a unique situation and you need to understand this. Some are heavily focused on one country or region and you need to support them there with local expertise and staff, while others have gone global and expect you to support them equally in all locations. This means that you must decide where you need to be present and then ensure that you understand the business practices, regulations, etc. where you decide to operate. To make all this work, you need to establish global processes and systems – also to ensure that you provide a common experience for all your clients no matter where they are. In many ways, I think we face a similar situation to the one facing our global clients.

In the past the motto for many companies was: Think global, act local. In our industry it is more ‘think local and act global’, as regulation and business are quite different by location.

In our industry it is more ‘think local and act global’, as regulation and business are quite different by location.

Journal: And what about cultural challenges?

Klaus Holse: It is key to understand and act according to the cultural differences that exist between countries when you do business on a global scale. You need to take into account fundamental cultural characteristics like power distance and uncertainty avoidance, which are very important in for instance contract negotiations and employer-to-employee situations. You need local representation on your teams to ensure that these and other cultural characteristics are understood and managed successfully.

Journal: Coming back to your clients, how can IMS vendors better support investment managers who are also facing the challenges of globalization?

Klaus Holse: To answer this question, you need to put yourself in the place of the investment manager who decides to embark on a global growth strategy. There is no such thing as a ‘one-size-fits-all’ approach. The organizational and cultural challenges asset managers face are quite similar to those of a global IMS vendor like SimCorp. When it comes to the IT platform, firms need flexibility and scalability in order to win, service, and retain their local customers depending on the markets they are entering. In addition, you will need 24/7 operations at headquarters to support your business across multiple geographies.

Local customers have local investment preferences, which in turn requires you as an asset manager have the ability to expand your offerings and be competitive when it comes to the time-to-market for new products. Agility is the spell of success that will separate the winners from the losers in a fast-paced globalized world where investor preferences change all the time.

Journal: You already mentioned regulation as one of the factors adding to the challenges facing today’s investment managers. Surely, this pressure increases if you decide to go global?

Klaus Holse: Taking your investment activities to new markets will mean local compliance requirements, adding significant complexity to your operating model. With regulatory demands expected to continue to increase, system providers like SimCorp need to develop solutions capable of supporting multi-jurisdictional regulations to stay competitive. Sadly, there are still legacy systems in place in many asset management firms that do not offer sufficient data management capabilities. This is impeding regulatory compliance, which in the short and long term, is extremely dangerous.

Journal: It seems that globalization accentuates the data management challenge?

Klaus Holse: Absolutely. In a global company, everybody must be able to access reliable and accurate data at all times and everywhere, no matter if you are an IMS system vendor or global investment manager. This sounds like common sense but it is nonetheless still something too many investment managers struggle with as they rely on legacy systems or a myriad of dislocated systems that are not able to deliver ‘a single source of the truth’. This puts the business at risk in terms of losing the revenue that was the goal of its globalization strategy as you could end up making wrong and harmful investment decisions based on incorrect data.

Journal: Although you say, there is no ‘one-size-fits-all’ approach to a successful globalization strategy; can you give some pointers as to how you envision the future ideal global operating model?

Klaus Holse: With disruptive technology giants like Google, Alibaba, and Facebook also entering the investment management industry and with the post-baby-boomer generation becoming the first tech-savy retirees, I think we all need to accommodate a much more individualized demand and a need for tailor-made offerings when it comes to for instance pension fund products. In my view, there is no doubt that a global operating platform must be agile, scalable, and able to adapt to local preferences and new growth opportunities, while at the same time managing risk and keeping costs down.

Journal: Thank you for your insights. To continue the dialogue, whom would you like to hand over the relay to in the next CXO Corner?

Klaus Holse: I would like to hand over the relay to Age Bakker, COO at Norges Bank Investment Management. I’m sure he, with his considerable professional experience, will have some interesting things to say about what he views as the biggest challenges of globalization in our industry going forward and what it takes to manage people and processes in a global organization.