If you’re just joining us, we’ve been talking about how technology can help simplify the investment process to enable managers to focus on their core business. This is even more pertinent for emerging managers, many of whom are facing a tough market environment that features high regulatory costs, dearth of ready funding and a demanding investor base. Nevertheless, the industry ended 2016 at record capital levels, and research suggests that investors are increasingly willing to allocate to emerging managers.
So what do emerging managers need to get going in this market environment? We believe that getting the right technology in place can make a big difference to the success of an emerging manager. And we’re not alone – a recent survey revealed that outsourcing is on the key list of priorities for as many as a third of asset management firms, start-ups and established firms alike. I recently spoke to HFM Week about key considerations for technology outsourcing; here are some key takeaways from that interview:
Seek a partner, not just a vendor
Ever tap a vendor, only to find out that every service call will incur an extra charge? Have so-called partners that call twice a year – once at implementation and the other time at renewal? It’s crucial for emerging managers to avoid such deals and consider value over cost. After all, what you want to consider is total cost of ownership over a lifetime of that relationship. In fact, all of your partners should have your best interests in mind. One example of this would be a vendor that will work with you to manage costs as your business and platform needs grow.
Automation and avoiding human error should be prioritized
Whether you have one COO who’s also the CTO and the CCO – or an army of outsourced traders – automating and centralizing the investment management process on one platform can help simplify day-to-day life tremendously. Relying on a platform that’s going to standardize data used throughout the investment process will also reduce costly errors.
Given the limited resources at most emerging shops, it’s more cost-effective in the long-run to employ systems that are flexible, resilient and highly portable. Most importantly, it’s worth thinking about your long-term growth goals, and whether the system you are choosing will support them later. You might be considering a cheaper, bare-bones system to support a single strategy today, but will you have to overhaul your entire infrastructure when you add strategies later? It may be cheaper from the total cost-of-ownership perspective to employ a less limited solution at the outset than attempt to adjust technology to your strategy later. For example, one recent survey of asset management firms found that 90% planned to increase their tech spending over the next three years, with more than half citing the need for replacements or upgrades.
In summary, here are some key things to keep in mind:
- Your system should be optimized for disaster recovery, with a production environment for email, files and file sharing, as well as remote access.
- The regulatory requirements your firm is subject to and how your chosen system is set up to handle compliance.
- Consider the system’s cyber-security protections and employee training.
- How robust are your system’s portfolio management, trade management and allocation? Does it have strong execution capabilities?
- Does your system allow for full reconciliation with third parties – primes, custodians and fund administrators? Can it act as a shadow to ensure accurate reporting and operations support? Hint: Your system should be able to give you a start-to-finish audit trail. Period.
- Is the system designed to grow with you? Will it still suffice when you’re managing billions? Will you have to spend significant amounts of money to upgrade – and would it be cheaper to just spend a little more on a more robust system today?
- Last but not least, your vendor should support you in managing all of your relationships and acting as a soundboard to help you solve market challenges. You’ll need a partner, not just tech support.
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