Manual Processes Blunt Front-Office Efficiency

Terry Flanagan

Nearly half of asset managers participating in a survey by investment management software company SimCorp report having spent more than 15% of resources on manual processes in the front office. For participants in this category, average performance ratings were lower in every case.

“There is a real, measurable cost to having ‘alpha generators’ (PMs, analysts and traders) spending their time on manual processes like reconciliation, cash forecasting and asset setup,” said Marc Mallet, vice president of product & managed services at SimCorp North America.

Following the crisis, there has been a greater emphasis on risk management, attribution and compliance. Most front-office platforms do not properly integrate analytics, which requires investment professionals to rely on multiple, disparate systems, said Mallet, which introduces latency, which can lead to missed opportunities.

In December 2014/January 2015, front-office decision makers at buy-side investment management firms (with at least $ billion) were asked to rate the efficacy of their front-office IT solutions to address today’s most prevalent business challenges. Respondents included chief investment officers or directors of investment management, with the remainder consisting of head of a function (e.g. portfolio management, trading) or asset classes (e.g. equities, fixed income).

Close to a quarter of the respondents indicating they feel uncertain about the ability of their system to support new market entry (24%) and new asset classes (21%). These factors are growing in importance at a time when incremental fee growth is likely to be generated by non-traditional asset classes.

“The ‘mainstreaming’ of what were previously considered esoteric asset classes including alternatives and bank loans have driven investment managers to look for true multi-asset-class solutions that properly handle all aspect of the investment life-cycle,” said Mallet. “It is no longer good enough to ‘stub out’ a new asset or challenging asset type and force it through legacy systems.”

The ability to generate and view intraday positions has become an increasingly important factor for the front office, yet one in five (18%) of respondents indicate that their front offices deficient in this area.

The term Investment Book of Record (IBOR) was coined in the late 1990s, but has only recently become thought of as a must-have for investment managers.The concept originated out of the need to provide real-time, accurate and actionable information to the front office, risk management and compliance professionals.

“Essentially, an IBOR delivers control over investment-critical information to asset managers by centralizing intraday positions across all asset classes into a ‘golden copy,’” Mallet said. SimCorp is one of a “handful of solutions available that are designed to handle all position drivers across all instruments with the data repository and tools to do so today.”

More than one-third (37%) of respondents said they were not entirely confident in their ability to comply with regulation. “In North America, investment managers continue to face a changing and more stringent regulatory environment,” said Mallet.

Both Emir and Dodd-Frank contain trade reporting and trade matching requirements, he said. Canada’s Trade Matching (NI 24-101) and Derivatives Trade Repository are coming online later this year. Additionally, the SEC’s Money Market Fund Reforms will have significant impacts on fund managers operations and technology environments.

Featured image via imagewell10/Dollar Photo Club

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