Buy-Side Need: Systems Integration
As investment technology grows more complex, managers seek partners—not just vendors.
In an ideal world, a single technology system would handle the entirety of a large investment manager’s trading needs.
But given the breadth of the trade lifecycle and the intricacies of its components, no one provider has emerged as the best at everything. So the next best thing is for systems to be compatible with each other. For a tech provider, walling off a rival may seem to be the proper competitive maneuver, but it can backfire if it gums up the workflow of the end user.
“If a key software platform in your stack is not able to integrate with multiple external and internal systems, or if you don’t have a fairly open API set that permits integration and interconnectivity, then you’re setting yourself up for challenges,” said Phil Dundas, Head of Information Technology, Americas at Schroders, which manages $577 billion.
On the trading desk, one core integration need is that the order management system (OMS), which queues up trade orders internally as per portfolio manager–trader communication, sync with the execution management system (EMS), which manages orders and their interface with external markets. But beyond the OMS-EMS tie, buy-siders have multiple icons populating their desktops, each with a niche function ranging from pre-trade to post-trade and from communication to compliance. Each should optimize its own functionality and also work seamlessly with the rest.
“Every integration point, every handoff between systems, represents an opportunity for a break,” and can introduce operational risks and costs, said Tracy Wolfe, Head of Strategy, Portfolio Management & Trading Solutions at FactSet. “Ensuring data concordance across systems is a common challenge our clients face.”
“In assembling their vendor teams, some of our most successful clients considered not only the functionality of the selected system, but also that vendor’s ability to manage its integration points into the client’s processes,” Wolfe added.
The State of Wisconsin Investment Board, which manages about two-thirds of its $104 billion internally, recently completed a four-year operations and technology transformation program.
This initiative focused on delivering a state-of-the-art, integrated platform comprised of leading technologies, services, and streamlined processes. The upgrade introduced eight new technology solutions, spanning areas such as portfolio and order management, risk, analytics, data management, reporting, and business intelligence.
Openness was a primary consideration when the pension fund’s selected technology-systems partners for the project, said Michael Williamson, SWIB executive director. “The program, which touched all areas of SWIB’s business, involved replacing the entire technology infrastructure to provide a complete overhaul of SWIB’s technical and operating environment,” he told Markets Media.
“Having a program that could be integrated with systems across the entire organization was vital to the success of the project,” Williamson continued. “It also gives SWIB the ability to improve its infrastructure in the future as systems and technology evolve. Having an integrated platform was vital to us, so we selected technology vendors that provided flexibility and the ability to integrate with other systems.”
The challenge of integrating technology systems has increased as markets have grown more complex, forcing institutional asset managers to keep up. Gone are the days of plain-vanilla, long-only shops with 60/40 stock/bond allocations — today’s buy-side desks typically cover disparate asset classes globally, route trades to dozens of different venues, and report to multiple regulatory regimes.
“As the number and diversity of technology tools at our disposal continues to increase, so too does the complexity of putting these technologies together,” said a senior executive at a large quantitative asset manager, who spoke on condition of anonymity. “This includes both internally created and third-party tools. At the same time, data is growing exponentially and our needs are becoming more sophisticated and focused.”
“In this faster-paced market, we are developing more custom in-house technology tools and resources in order to stay competitive,” said this executive, who added that it is a “strategic imperative” for all institutional managers to invest in the right technology to successfully operate in a data-intensive environment.
FactSet’s Wolfe added, “The advancements we’ve seen are making system integration easier, but when we still see inertia to move from legacy systems, the old challenges and risks persist. Highly custom workflows built in closed, entrenched systems are challenging some firms’ ability to be nimble enough to fully capitalize on innovation.”
For Schroders, the secular migration from on-premises computing infrastructure to externally provisioned cloud-based services underscores the need for tech systems to be compatible with one another.
“With increasingly open digital and cloud-delivered services, vendors are recognizing that providing flexibility and sound integration capabilities into all of the various platforms in use by a firm is essential to success,” Dundas said. “Companies that are not providing flexibility and willingness to work with other systems will likely be left behind.”
“There’s a fairly common suite of systems that are used among most asset managers,” Dundas continued. “Being able to provide interconnectivity and integration with those — from the infrastructure level right up to application programming interfaces to allow it to integrate with existing systems — is key. The ability to integrate with multiple systems permits faster workflow end-to-end, which ultimately provides a competitive edge.”
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