04.03.2013

New Technology and Impending Regulations Force Buy Side to Ramp Up IT Spend

04.03.2013
Terry Flanagan

Asset managers in Europe are being warned that IT spend is set to rocket this year despite weak market growth as the buy side continues to grapple with new technology and impending regulations.

“I continue to see a costlier environment for the small and medium-sized asset managers to keep pace with technology and keep pace with the need to offer additional reporting and to offer cost and risk management,” said Giovanni Govi, chief investment officer at Theorema Asset Management, a London-based European long/short equity group.

“You are going to continue to see a need to upgrade your IT infrastructure.”

And with investor returns remaining weak, the buy side is aware that investors are becoming less faithful as they seek better returns. As such, improving customer experience is also one that the buy side is being urged to consider by building investor loyalty and, in the process, creating a competitive advantage by investing in client servicing.

The availability of reports detailing how portfolios are performing is set to provide a more transparent, frequent and readily accessible insight into the performance of particular asset managers.

“The buy side is demonstrating good, old fashioned business sense,” said Rik Turner, senior analyst, financial services technology at Ovum, a U.K. consultancy.

“With a weak return on cash equities and uncertainty around margins, investors are looking for better returns from alternative asset managers. The buy side is finding ways to increase returns by reducing the reliance on a single broker and adopting multi-prime strategies, as well as through direct market access.

“There is no doubt the buy side is becoming more tech-savvy and looking to lower its dependence on brokers—the continuing fall-out from the Lehman debacle. Of course, with a raft of regulation, including Emir and MiFID II on the horizon, spending on compliance will remain a high priority.”

Turner also sees the sell side increasing its IT spend in order to deliver returns for an ever-demanding buy side through the optimization of post-trade operations. Cloud services and microwave connectivity—until now the domain of the buy side—are becoming a realistic option for a number of sell-side functions.

“Despite the market instability, the sell side is still increasing its IT spend to move forward,” said Turner. “With an increased reliance on innovative technology to deliver returns for the buy side, the sell side is strategically outsourcing previously on-premise IT solutions to reduce costs and remain competitive. Although IT infrastructure investment will grow, the age-old focus on compliance will continue to dominate sell-side IT spend.”

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