For Buy Side, Consistent Structures Are Key
Removing the Barriers to Optimal Performance: Why Consistency is King in Asset Management
By Steve Ioannou, Head of Bloomberg AIM & Buy-Side Risk
When we began working with Westwood Holdings Group, a U.S.-based investment and wealth manager, they came to us with a problem that every asset manager would love to have: they were rapidly growing. Over the last several years, the firm acquired a Toronto-based emerging markets team, a Boston-based global convertible bond team, and a Houston-based private wealth platform. The acquisitions drove the firm’s total assets under management from approximately $13 billion to $22 billion.
The problem? With the growth came a more complex operational structure. The firm was using different software and accounting systems across each location, making it challenging to pull together a complete picture of the firm’s portfolios. The disparate systems, coupled with the fact that the firmwas now managing emerging markets and multiple currencies, as well as operating with currency futures trading, created a situation that required Westwood to evolve its target operating model (TOM).
Westwood experienced a challenge that is becoming more and more common with the asset management firms I work with every day. As firms expand in size and across geographies, whether through organic growth or acquisitions, they often amass piecemeal legacy systems and diverse operating models.
Expansion can create a lack of a centralized global view of performance, real-time and historical data, and hurdles to meeting regulatory requirements in a timely way. This fragmented approach prevents seamless communications across investment groups and often requires additional resources to capture exposures and profit and loss, which in turn drives up technology and human capital costs.
A new reality
The sheer volume of data available to asset managers today can offer either a competitive advantage or be a distracting burden. While access to timely data is more critical than ever for the asset management industry, selecting what’s needed from the vast amounts of available data isn’t easy. Fast-clustering algorithms process millions of data points every millisecond, end-of-day downloads have been replaced by real-time streams of global market activity and news events. Additionally, every facet of the trading workflow is digitally captured — from communications and price quotes to positions and transaction metadata.
For those firms still saddled with fragmented technology, incompatible applications and disparate data views, the benefits of all that data are hard to grasp. But for those that have established centralized data sources and efficient operating models for unfettered access and use, data can present endless opportunities.
Asset managers who understand the make-or-break nature of data consistency, and thus prioritize strategic data management at the core of TOM, are better positioned to take advantage of opportunities in emerging markets, nascent datasets and new asset classes.
A journey to operational efficiency
Recognizing the importance of data consistency is just the first step in a buy-side firm’s journey to operational efficiency. The next step is to assess their data architecture, systems architecture and infrastructure. Once the pain points are determined, they can begin to develop the appropriate TOM to unify workflows and create a high impact and profitable process.
After an assessment of their own pain points, Westwood determined that their front office technology posed the greatest risk and thus would be the initial priority. The firm’s investment professionals were looking for higher-quality data and in a timelier fashion, as well as a robust trade compliance platform that could address the foreign securities. Following their TOM overhaul, Westwood can now manage the entire application infrastructure for the firm with just two people.
“We’ve really established consistency across the firm,” Fabian Gomez, COO, Westwood Holdings Group said. “We’ve taken the stress and risk out of the front office, and that has had positive effects on operations and data management. Our most complex products went from tedious, frustrating, manual work to PMs having time to consider their priorities and manage their portfolios. From our perspective, it has been a very big success.”
Tomorrow’s buy-side operating model
Front-to-middle consistency empowers each department to work on the same platform in a rapid timeline, rather than changing the entire central operating model. This often requires creation of a global middle layer, which will result in an investment book of record (IBOR) for senior stakeholders.
By aligning investment professionals, compliance and middle office systems, firms can ensure data is streamlined across the investment lifecycle, providing real-time access to data that allows the firm to expand into new asset classes, as needed. While creating a more efficient TOM can be challenging, once the change is complete portfolio managers and investment professionals can get back to focusing on the business at hand and better serving their clients.
Global ETFs had record net inflows of $1.3 trillion in 2021.
The Universities Superannuation Scheme is the UK’s largest private pension scheme.
Buy-side and sell-side firms need to integrate applications to streamline traders' UX.
Passive funds represented nearly all U.S. equity inflows.
President and chief executive officer of State Street Global Advisors will retire in 2022.