89% found that providing timely and accurate start-of-day positions and cash as the most challenging function in supporting front office staff
In my opinion, it’s disheartening that in 2018, the top challenge facing investment operations is providing timely and accurate start of day positions and cash – effectively the lifeblood of the investment decision making process. While so much time, energy and capital are spent on trendy topics like blockchain, robotics and artificial intelligence, the most core requirements are still not being met. This should be an eyeopener to the industry – get the basics right before looking for the shiny new toy. Part of getting the basics in place, is unifying data silos with an IBOR to give the front office accurate intra-day data on the information they need to make the best investment decisions for the firm.
In order to gain efficiency, respondents are focused on consolidating systems (80%), and reducing both manual processes (77%) as well as the number of system interfaces (76%)
So much of this comes down to simplification and controlling what you can. There are so many external factors (new regulations, client demands, new products, etc.) increasing complexity and driving up operations and technology costs that investment managers need to simplify what they can. Consolidating systems and reducing the number of interfaces can greatly simplify the operational environment enabling automation, reducing manual processes and ultimately reducing the cost of operations. For our clients who have been able to operate their funds below 10bps, they cite system consolidation, improving STP rates and having an IBOR for readily accessible and accurate data as being among their winning strategies for the compression of operating costs.
Operations as a Competitive
Advantage for the Buy Side
100 heads of North American buy-side investment operations shared their
insights for a report on their strategic priorities, challenges and key initiatives for 2018.
More than 50% describe their technological capabilities as merely functional, with only 17% perceiving themselves as true innovators
Even as innovation continues to be a strategic priority, these numbers suggest that Heads of Operations responsible for driving these initiatives forward are struggling to do so. The fact that only 17% of Heads of Operations perceive themselves to be viewed as true innovators by their stakeholders, signals a time for change. Vital to this change, is the opportunity for buy-side operations to move beyond traditional roles and support operational efficiency, by consolidating data sources and increasing automation. This will in turn drive growth and profitability. Ultimately, empowering the front office with a real-time IBOR and a single source of actionable data across all asset classes, will deliver the competitive advantage required to thrive in today’s markets.
75% say that consolidating systems and reducing interfaces is their top strategic priority for 2018, followed closely by reducing interfaces
It is interesting that the top two responses are very much related – one begets the other. By consolidating systems and reducing interfaces, investment managers will increase the accessibility and accuracy of data to support the front and middle office. Automation, which was also rated high, directly benefits from fewer systems, interfaces and more accurate data. It is very challenging, if not impossible, to automate processes across a disparate, disjointed application architecture. Our clients who have achieved higher degrees of automation throughout the investment lifecycle have relayed the benefits of automation on the morale and satisfaction of their team members. They have been able to redirect team members from performing mundane manual processes to higher value work in areas such as analytics.
44% of respondents feel that key front office stakeholders view operations as business partners that deliver value in supporting investment mandates
This takes me back to this figure of only 17% of heads of operations believing that the front office views them and their teams as innovators that provide the firm with competitive advantage. There is ongoing industry research that discusses the correlation of operational efficiency on portfolio performance, where controlling the vast, ever-growing store of enterprise data, and extracting competitive advantage through analytics can give a buy side firm an edge that translates into anywhere between 51-242 basis points (bps) of inherent alpha. There is therefore huge potential for a head of buy-side operations to elevate the value their teams bring to the firm by running a leaner and more efficient operation.
This blog is a compilation of extracts from the InvestOps report, ‘Operations as a Competitive Advantage for the Buy Side’. To get all the insights, download the full version here.