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Has Your Investment Operation Outgrown Your System?

Michael Hutner

It’s no secret investment managers today face tremendous pressures on their business. The drive to deliver alpha, keep up with the ever-growing list of regulations, all while keeping costs down, challenges emerging managers and their larger competitors alike.

At the heart of keeping up with these competing demands is technology. As Larry Tabb recently wrote, “The key to most funds’ success will evolve around efficiency – executional, operational and organizational, with the key to survival revolving around the order management system (OMS).”

At Eze, we’ve been in the investment management systems business since the early days.  We’ve seen clients using everything from highly diversified, multi-vendor patchwork systems to ones that have transformed their investment operations by putting them on a single front-to-back optimized platform.

Of course, every firm is different, and few solutions were built to address all of investment managers’ needs. For instance, if you originally implemented a system that was strong in accounting but lacked advanced order management capabilities, you might find yourself running short on what you can do when you need it. It’s worth it to periodically consider whether your legacy system is still serving your needs. Here are some reasons to consider reviewing your operational setup.

Disjointed systems are costing you time – and money.

Are your operations teams spending half of their day doing reconciliation? Is your trading team spending a chunk of their day fixing rule violations the compliance team discovered after the close? When your team is using disconnected systems, data is updated at different times – so critical tasks get completed inefficiently, out of order, and often have to be repeated to be done right. This creates a lot of inefficiency in daily operations.
 
If you’re finding your team struggling to deal with yesterday’s problems, it might be time to look for a new system that brings the entire team onto a single platform powered by one set of data. This means compliance violations can be flagged before trades are executed, reconciliations can happen throughout the day, and reporting data is compiled continuously, freeing up your team to focus on moving forward.

You are shifting investment strategies.

Adding new investment strategies to your roster, or shifting gears entirely is a great time to review your investment management technology. Many investment managers in the last few years have been expanding the investment strategies’ scope, asset classes and fund structures. Ideally, your investment management system should be able to accommodate such additions without a hitch. For instance, Tabb notes the increased demand for fixed income trading technology integration. If your platform cannot accommodate the addition of new protocols or if your vendor can’t easily connect to new order and execution management platforms, it might be time to reconsider your system before you push your business in the same direction.

You are pushing into new geographic territories.

Opening a new office in Europe? Are APAC customers knocking on your door? Expanding your reach into new geographic territories is a great time to consider the compliance capacity of your current investment management system. Is your compliance library capable of supporting new rules that will come from those jurisdictions? Can it be easily updated? Are your reporting mechanisms in shape to quickly accommodate new reporting? Ask yourself these questions before you push your boundaries.

You are adding new products, or types of clients.

Many hedge funds add separately managed accounts to their business lines, and demand for the product continues to grow. There’s also a host of opportunities in the ETF space in the long-only space, as well as opportunity for firms of various types to add private equity clients. But new client types require new accounting and reporting mechanisms, and many of these businesses need to be run differently. Make sure that your system can accommodate new complex fund structures, or look for one that can.

New regulation is coming down the pike.

It’s no secret that the investment management industry has faced a host of new regulations in the last few years. MiFID II alone is estimated to have cost the industry USD2.5 billion to implement, with ongoing annual compliance costs estimated at USD750 million. There are still some unanswered questions about the specifics of implementing certain requirements, and that’s been followed by GDPR and other regulations. This is where your vendor can play a critical role in helping you become compliant. Ask yourself: has my current vendor been swift in responding to my inquiries? Have they made an effort to reach out well in advance of implementation guidelines? And how did implementation go? Chances are, you’ll be facing another regulatory squall soon, and you’ll want to weather the storm with a trusted partner by your side.

These are just some critical moments that should serve as checkpoints for evaluating your current investment management systems. And the market is shifting as well. Says Tabb, “While many firms have a heterogenous best-of-breed infrastructure, we are seeing firms increasingly work to consolidate their technology stacks, reduce the number of platforms, and even combine their investment and trading technologies onto one platform… The firms that can make this transition not only can minimize the cost of technology licenses, they also can reduce the number of platforms that need to be run, supported and maintained, and more easily and seamlessly aggregate their data across products and geographies.” Perhaps it’s time to give your operations setup another look.

For more on the state of the investment management technology market and prevailing trends, download Tabb Group’s report here.

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