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Navigating the buy side in a data-driven world

Why buy-side operations must end their love affair with the status quo and instead adopt meaningful change to contribute to their firm’s success.

In today’s margin-pressured environment, buy-side firms must focus on the reduction of costs. To do this successfully, firms need to cut through complexity and efficiently manage transaction lifecycle data, as a single complete entity. Investing in system consolidation unleashes the true potential of a firm’s intellectual capital, unlocking the silos of front, middle and back offices, to enable informed decisions based upon a single contemporaneous set of data. Simplifying operations in this way ultimately translates to reduced cost and risk, but more importantly, delivers the innovation that is vital in the search for returns and competitive edge.

Active managers have had a rough ride of late, facing disruption from several directions including technology innovation, a deluge of regulation, the encroaching growth of alternative asset managers, and of course, the upsurge in passive investment. In response, firms must now handle more data more frequently, and with greater accuracy than ever before. But given the tangled web of complex systems, multiple interfaces and legacy architectures that many asset managers are operating, the need for simplification is the more immediate concern.

To understand the extent of this situation, SimCorp commissioned WBR Insights to speak to 100 European buy-side firms, to quantify their greatest challenges and opportunities.

Cutting through complexity

Today, the core requirements of how investment data is managed have significantly transformed. Firms need to ask themselves whether their ‘spaghetti approach’ to data management is sustainable. When investigated, most firms will see that the bulk of the investment processes can in fact be standardized and automated. Fragmented and duplicated systems can be consolidated into a single ‘golden’ source of data, as an investment book of record (IBOR), eliminating the need for arduous manual reconciliation caused by ‘bad data’. This necessity is reflected in the fact that 91% of firms surveyed are seeking to reduce manual processes to decrease the cost of operations. A further 67% are looking to consolidate systems and 60% improving straight-through processing (STP) rates.

Buzzwords about robotics and blockchain are all around us. Some of these technologies have great potential for the asset management industry. But without a sound investment platform at the foundation of operations that delivers timely and accurate data to the front office, the use of these technologies is limited. As the results indicate, there is much work to be done to perfect the core of investment operations, including: the reduction of manual processes; consolidation of the vast number of systems and interfaces, each with their own risks and costs; and improvement of STP rates. Addressing these issues first is crucial, not only for cost control and efficient operations, but because they cut right into the heart of investment management, i.e. the investment decision-making process.

What strategies are you employing to reduce the cost of operations?

buy side data challenges

The more efficient a firm’s data is, the more profitable that firm will be in the longer term. For instance, the firm’s resources can transfer their focus to value-generating tasks, while increased automation enables the business to grow without adding operational staff or technology infrastructure. Reducing systems in this way healthily increases the margins and at the same time eliminates the operational and vendor risk associated, with so many moving parts.

Harnessing data for enhanced decision-making

The argument for consolidated data management has never been so strong. Beyond cost and risk reduction, it delivers accurate and timely data to the front office, which is critical to making informed investment decisions. This has a major impact on a firm’s ability to compete. The survey results show that 79% of firms reported their top challenge in supporting front office staff is the ability to accurately measure firm-wide limits and counterparty exposures. A further 77% view the centralization of data for a consistent, firm-wide view of the market, as an issue. Eliminating these silos and enabling the timely delivery of accurate data is therefore crucial to the investment decision-making process. This is where an Investment Book of Record (IBOR) is vital. It acts as the central nervous system of the investment platform, delivering one single source of truth. With intraday data available on key numbers, an IBOR takes into account front office activities, as well as workflows such as corporate actions, securities lending etc. It is key to solving many of the top challenges facing the front office today.

To date, the best of breed order management and execution management systems are often separate systems from different organizations. So it is no surprise that controlled access to an integrated OMS/EMS system is impossible for half of those surveyed. What’s more, the challenge doesn’t just sit in the front office either. Regulation and the sheer volume of inbound market data, mean Portfolio Managers now require access to data that is beyond their EMS, to gain a thorough overview and guide their responsibilities, from decision-making to compliance.

What should you characterize as your top three challenges in supporting your front office staff?

buy side data challenges

 

Automation that delivers alpha

But data management is not just about operational efficiency and cost reduction. In a shrinking market where competition is rife and alpha is elusive, a single data set that can deliver increased automation and transparency is paramount. From reconciliation, collateral management, corporate actions, cash management through to reporting, it is vital in delivering improved returns. It empowers a firm’s manpower to better understand and retain clients, accelerate on-boarding of funds, create new lines of business, and ultimately optimize funding requirements and investment decisions. A single, reliable source of data is an invaluable tool that firms can’t afford to overlook, especially in a low margin world.

Firms need to ask themselves: How will we compete and thrive, if we can’t efficiently act upon our data? Ultimately, the winners will be those firms who can onboard clients and funds quickly, and then manage the assets effectively and intelligently.

The report has a lot of fantastic insights, and I’d encourage everyone to download it and read through it. You can download it here.

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