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Battling complexity in investment management

Investment managers are today faced with a market where the only constant is change and where increasing complexity is putting strains on firms’ operating models.

Asset managers, fund managers and wealth managers as well as pension and insurance firms worldwide are feeling this pressure and finding it increasingly difficult to operate efficiently.

The complexity derives from a number of current trends. Particularly, we see investment managers:

  • invest more and more in complex, alternative instrument types and derivatives in the attempt to growth their profit.
  • have to deal with massive and increasing amounts of data generated from new markets, new instrument types, systems and other sources.
  • are under pressure to comply with a continuous stream of new regulations imposed by authorities in all markets to ensure stability and integrity in the financial system.
  • need to deliver better client reporting as they are increasingly faced with investors who want to play a more active role in managing their own investments and demand more transparency into how and at what cost of their returns are achieved.

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When the battle against complexity leads to more complexity To find rapid solutions for handling the increasing complexity caused by external demands – for instance being able to comply with a new regulation or introduce a new financial instrument – many investment managers have over time adopted a wide range of different add-on and stand-alone systems. As a result, they are now also faced with a high degree of infrastructure complexity.

When a firm’s infrastructure ends up being composed of disparate systems running on a variety of technologies and data formats, it can be a severe hindrance to its reporting, data management and process automation capabilities. The result is operational bottlenecks and inefficiencies, which – if not addressed in time – are likely to not just impact the firm’s current profitability, but also its long-term ability to compete for growth.

Apart from the effectiveness of its operations, an investment manager’s ability to compete in the market is highly dependent on the quality of its investment decisions. With a fragmented system architecture, many portfolio managers need to base their decisions on end-of-day positions from the day before, or resort to error prone, time-consuming manual processes to estimate their positions and risk exposures. This is likely to impact the quality of their investments decision and consequently their ability to produce the best possible returns.

The winning strategy To deal effectively with industry complexities and inefficiencies caused by a fragmented system architecture, you need to adopt an integrated system approach. When you consolidate the number of systems and operate on one integrated platform, you are able to leverage the same technology and the same ‘golden copy’ of data across the enterprise. This enables a high degree of automation, real-time position keeping, and the necessary agility to quickly expand into new markets or financial instruments.

This article originally appeared on The Wall Street Journal.

 

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