Why did SimCorp build an Alternative Investments Manager?
As part of SimCorp’s long term strategy, alternatives investments (AI) is one of SimCorp’s strategic priorities, as client feedback and industry expectations forecast consistent and long-term growth for this asset class. SimCorp clients too, are looking for granular functionality as their exposure grows from handling AI as an additional instrument type to having whole teams dedicated to it. At a time when alternatives are still a niche market catered for by niche vendors, SimCorp’s strategic advantage has been demonstrated in its established front to back offering, SimCorp Dimension.
The compelling reason for SimCorp to build out a new all-in-one Alternatives Investments Manager was that while many firms are able to achieve high STP in the management of traditional asset classes, across key functions from performance, settlement and reporting to accounting, finding the same level of automation and integration for their growing illiquid, alternative investments was proving challenging.
This includes Private Equity, Real Estate and Infrastructure. Fragmented, legacy and best of breed systems all have a part to play here, and we are seeing renewed interest from the market for a consolidated strategy not just towards traditional asset classes but also alternatives. The recent WBR InvestOps survey outlines this interest, where 80% of North American buy-side firms reported system consolidation to be their number one priority for 2018.
How does this differ to what SimCorp offered its clients before?
Whilst SimCorp has offered IBOR and ABOR support for these investments for many years now, and introduced a separate Private Debt module last year, the new Alternatives Investment Manager transforms the client experience from instrument-based functionality across the vertical modules to front to back functionality, in one dedicated module. The Alternatives Investment Manager draws on SimCorp’s alternatives excellence, delivering improved functionality, such as a 360-degree analytics dashboard, and automated workflows. New ‘slice and dice’ analytics and the availability of granular performance data, enables firms to further tighten their risk management and investment decision making. Ultimately, LPs will be able to consolidate and automate their alternatives investments across the entire lifecycle, in the same way they do with traditional asset classes.
What problem does this solve for buy-side firms investing in alternative investments?
This offers the buy side a significant opportunity, given that the current strategy for the growing number of Limited Partners (LPs) is a mix of niche solutions, manual workarounds and for SimCorp clients, the IBOR and ABOR functionality within SimCorp Dimension. To date, firms have tended to spend significant money on niche or unicorn systems to overcome lack of integration in the front office.
This has resulted in a spaghetti system of additional systems and interfaces, manual workarounds and reconciliation, and for non SimCorp clients, insufficient accounting support. The WBR InvestOps survey neatly highlights this point, where 62% of North American buy-side firms stated alternatives and private debt to be the most costly and challenging asset classes to support.
The new Alternative Investments Manager solution is unique in the sense that it is a fully integrated part of our front-to-back investment management system, and runs on the same single source of data. As a result, our clients are provided with the same support for multi-asset class strategies in one system and do not need to handle alternative investments on a separate application. At the same time, they can cut down on costly interfaces, data warehousing and consolidate risk and performance.
Reflections from a recent webinar
We recently hosted a webinar with one of our development partners in this area, PenSam. In the webinar, I gave a brief demo of the Alternative Investments Manager, while Thomas Anker of PenSam talked about their experience as a development partner on the project.
During the webinar we asked the audience some questions, and the answers were really interesting.
Around 22% of respondents were still running more than half of their alternative investments business via Excel. When comparing the percentage of use of Excel when using a third party alternatives system, this percentage increases with the usage of a third party system – this surprised me a lot. The results showed that 44% of people managing more than 50% of their business in a third party system also use Excel for 50% or more of their business. On the other extreme, only 22% of respondents running less than 10% of their business in Excel are using a third party system to cover the rest of their business. This seems to demonstrate that using a third party system for managing alternatives does not reduce the Excel footprint but actually increases it, and you can achieve more by using an integrated platform, outsourcing, or building a custom solution.
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