Product insights

The secret sauce starts with a standard recipe

Reflections on AXA Investment Managers’ front office operational excellence webinar

In listening to the impressive list of speakers give their views on how to achieve front office operational excellence, what came to mind was that the most basic foundational building block is what, in the end, allows for the highest level of sophistication. This is the case whether we’re talking about taste buds or front office software. Organizational leaders, in their quest for improved efficiency across the operation, are (indirectly) able to solve the challenges specific to the needs of their front office along the way. They do this by eliminating the operational road blocks their front office leaders currently face when trying to execute their proprietary “secret” investment strategy.

In 2014, AXA Investment Managers performed an in-depth review of their front office operations. They identified the following key objectives:

  • Simplification – more than 120 applications were being utilized world wide
  • Cost Efficiency – reduced man hours spent on tasks, thus lower operational costs
  • Globalization – 24/7 around the globe, starting in Tokyo and ending on the West Coast of CA
  • Better User Experience – making the day to day requirements easier to fulfill
  • Agility – creating new instrument types and responding to current regulatory demands

The secret sauce

Upon reading this list of objectives, a portfolio manager might ask, “what does this have to do with my investment strategy?” At face value, perhaps not much. When taking a closer look at what throws vinegar into the flawless execution of their strategy, however: cash and position issues, reconciliation problems, lack of trade details, etc., suddenly, the relevance is quite high. AXA Investment Managers laid out a plan that would result in a streamlined end-to-end internal process, utilizing SimCorp Dimension’s Investment Book of Record (IBOR), thus removing the sour taste of their daily front office execution challenges.

Fast forward, they started simple and are now live with their first Equity Portfolio Managers. They have ambitions to have complete coverage of all their instruments, including the most complex Alternatives, OTC derivatives and Loans. Most importantly, Gautier Ripert, AXA Investment Managers’ Global Head of Technology for Front Office, Risk & Operations asked his first portfolio managers for feedback once live on their first wave of funds and reports that they liked the screens in Asset Manager. “In fact, they are now chasing us to onboard all of their funds so they can realize the full benefits of the tool.” Ultimately AXA Investment Manager’s vision is a single platform, shared across front office, trading, compliance, risk and operations. Yasmine Reggai, AXA Investment Managers’ Governance and Transformation Officer also commented, “We can now completely benefit from what an IBOR means.”

Mind you, this is no easy task for an investment manager of this magnitude. They had 2000 issues that needed to be set up in SimCorp Dimension over a multi-phased strategy that included rolling out an IBOR, Compliance Manager, Asset Manager, then finally Order Manager. They still have more work to do on their pre-compliance checks, they are still in a state where they have temporary set-ups/temporary interfaces, and not all funds have been transferred over, so portfolio managers are still using two systems in some cases. Despite this, they are excited about the level of flexibility they now have available and the power that an IBOR brings to their front office.

Achieving this level of sophistication for their core competency was of ultimate importance to them. They describe themselves as a “different animal” for SimCorp Dimension, given they continue to outsource their middle and back office functions to State Street. Most SimCorp clients using the front office tool are using the SimCorp Dimension product front-to-back. One may instead surmise they are more an “innovator in their space” rather than a different animal. They have outsourced what they believe is not core to their business, and yet, using SimCorp Dimension’s front office and IBOR, they are still able to maintain full control and independence over all the middle and back office details required to truly optimize what is core.


The standard recipe

Next up was David Laird, EY Director, UK Wealth & Asset Management technology practice. He gave participants an overview of the surmounting market trends that ultimately created the requirement for an IBOR, including:

  • Pressure on fees – squeezing margins, requiring more efficiency
  • Structured product increases – in the quest for higher returns
  • Geographical expansion – pointing toward standardized, simplified global infrastructure
  • Increased mergers and acquisitions – further contributing to the need for a simplified model
  • Increasing regulation – adding to bottom line costs

Phil Tattersall, EY Director, UK Wealth & Asset Management Data and Analytics advisory practice followed this up by making a clear connection to why front office leaders indeed care about IBOR, albeit indirectly. “To be most effective, you need to be able to see all those non-trade events (i.e. corporate actions, income payments, etc.) impacting day to day positions and cash”. In other words, time is money and an immediate view into these impacts reduces dependency on the accounting process and thus, operational risks that get in the way of producing the secret sauce. People, regardless of where they sit along the process chain, are tapped into the same information at the same time. No latency issues, no reconciliation nightmares.

SimCorp’s Gernot Schmidt, Front Office Product Manager, closed the webinar with a bit of show and tell about SimCorp Dimension, illustrating how portfolio managers can use the tool to have all the details they need at their fingertips. The underlying message being that there is competitive advantage in, for example, not having to call your compliance officer to know whether a trade would be in breach of policy or to wait for an updated cash report to understand exactly what is available to invest. “At the click of a button, you have immediate control and view over where you stand vs. your portfolio mandates”.

Thoughts from fellow chefs

As a sanity check, we wanted to see how well the concepts discussed aligned with the opinions of webinar participants, so we polled the asset managers that signed up with a couple of related questions. Not surprisingly, 67% of respondents felt they required better front office efficiency and automation.

Figure 1

We further asked how many front office systems respondents were currently using. 56% said they were utilizing a minimum of three systems, with a small percentage of them using more than ten, to get the job done.

Figure 2

While the sentiment of efficiency and automation was well aligned, it appears our fellow front office market constituents feel there is still room for improvement, given their current state of affairs.

The winning result

There’s a reason why in a recent EY survey, 78% of asset management and servicing firms polled sited investing in technology infrastructure as a key investment objective. When it comes to where that investment is made, the priority is clearly where the business risks are greatest. The reader can do the math, but there are numerous supporting statistics in favor of increasing investment in front office infrastructure.

All indications are that solving the front office issues in today’s environment requires streamlined access to quality data at its core, which a best of breed solution cannot offer. A data warehouse doesn’t necessarily deliver either, as there can be a host of latency issues associated with getting information to-and-from the warehouse unless the technology is a real-time underlying component (i.e. an IBOR) of the platform rather than just a recipient/sender of data. There are no real short cuts to the decision-making power of full position keeping, which is why firms have not embarked on this level of consolidation lightly.

That said, there are multiple ways and models that can be adopted to achieve desired outcomes in a logical, phased manner, as AXA Investment Managers has done. It is the best foundational “recipe” that enables the highest grant achievable in the shortest possible time, even when the secret ingredients need to be adjusted to meet new circumstances.