Read the article and learn about:
- How a fragmented system landscape impedes active fixed income management
- The three biggest headaches for the fixed income desk
- The cost of time wasted on reconciling positions and cash
Front Office Specialist, SimCorp North America
About the author
The ability to quickly engage in new strategies and deploy new asset classes is crucial to producing the returns that will attract and retain investors in today’s competitive environment. For these to be effective however, special attention must be paid to increasing operational efficiency. This article examines the challenges facing active fixed income management which is impeded by fragmented operations in the front office.
Conditions becoming favorable for active management
The fight for fund flows between active and passive management has been going on for more than a decade. While passive management has pulled ahead since the financial crisis, the return of volatility and a rising interest rates environment are creating conditions that favor active management. According to MorningStar,1 active funds experienced improved performance during the period between June 2016 and June 2017, with funds’ success increasing substantially in 10 out of the 12 categories it tracks.
Against this backdrop, the ability of active managers to produce alpha from complex instruments such as illiquid fixed income, is even more essential. Moving into new asset classes is easier said than done on outdated or fragmented systems however. To take advantage of these opportunities, firms must focus on their improving their technology to increase their operational efficiency.
Active fixed income management obstacles that constrain revenues
A 2018 WBR Insights report2 surveying 100 fixed income executives across the North American buy side unveiled underlying challenges and issues to the fixed income desk’s top priority of reducing operational costs and improving profitability. Among the challenges uncovered were the unfortunate consequences of a best-of-breed system landscape and the impediments of legacy technology.
Among the challenges uncovered were the unfortunate consequences of a best-of-breed system landscape and the impediments of legacy technology. Terry Flynn, Front Office Specialist, SimCorp North America