A System That Grows With You: Thinking Long-Term
Welcome back. Last week, we spoke about what emerging managers need to consider for their technology setup to get going quickly. The flip side of the coin is the careful consideration managers should undertake to ensure that whatever technology platform they pick will work for them long-term. Put another way, emerging managers need to think long and hard about whether their chosen platform will grow with them.
“Why bother? Can’t I just pick a simple, low-cost system and upgrade later if I need to?” you might ask. You could. But consider this: the total cost of ownership for a system that often requires upgrades or replacements will far outpace any initial investment you would have made in a more flexible platform.
Here’s why: upgrades and system overhauls are disruptive, intensive, and, often, unsuccessful. Susan Glover, one of the leading technology and operations consultants in the independent financial advisory space, wrote recently: “From my experience, depending on the size and scope of the project, a successful conversion typically will take 3-6 months longer than expected and be 30-40% over the initial budget.”
Susan was talking generally about IT system replacements. In the asset management space, many are in that boat now: a BackBay Communications/Osney survey this fall found that more than 56% expect to replace at least part of their technology platform, with as many as 88% citing efficiency improvements as the reason.
We believe it’s far more efficient for smaller firms to pick at the outset a platform that can easily scale up and grow with them. This is especially true in an environment when more than 44% of asset managers expect to have to cut costs in the middle- and back-office to compensate for continued pressure on fees.
So what does a scalable platform feature? Here’s our take on what makes a system that grows with you, with key features in no particular order.
1. The platform needs to address your core needs in an integrated manner
Let’s face it: it’s easier to employ solutions that work well with one another at the outset, and address the core needs of small and large asset managers alike. This means covering your execution and trade management, trade analytics, operations, portfolio accounting and compliance with an integrated suite of solutions that can be tailored to best fit your setup. For us at Eze, that’s meant introducing to emerging managers an integrated system of core solutions in a turnkey front-to-back starter kit featuring institutional-grade technology with a fully managed and hosted infrastructure backed by a high-touch service mode. As far as we’re concerned, emerging managers have the same basic needs as their larger peers, and there’s a way to balance robust features with an affordable price point.
2. The platform is capable of supporting multiple asset classes across applications
We are seeing an influx of smaller credit shops entering the fray this year, with many looking to bring on a start-up system like ours to get going. For the most part, the needs of these managers aren’t materially different from those specializing in other asset classes, with the exception of data needs. In our experience, it pays off to choose a provider that can seamlessly stream data from multiple data sources to support core applications. For instance, we stream real-time and delayed pricing data from multiple leading market data providers to cut down on cost and offer choice to our clients across a range of asset classes and geographies.
3. Advanced features can be added easily
According to a recent SEI survey, those asset managers outsourcing their operations cite scalability among the top priorities for their operations platforms, in line with regulatory compliance and the capability to support trading across geographies and asset classes. This is likely because much of the growth in the space comes from managers scaling up their lineups – from adding UCITs funds to their rosters to branching out into different asset classes. More than half of the firms surveyed by SEI said that new product launches were likely to be the biggest single driver of investments into operations management platforms in the next 12-18 months.
4. Costs scale up based on needs, not AUM
No one should be penalized for business growth. It pays to pick a vendor that’s going to recognize that technology costs should be driven by need, rather than an arbitrary pricing package that makes assumptions based on AUM. To us, it’s always been about what you’re getting – additional data, advanced analytics, more modules – rather than how big your business is. A technology platform should be priced by the number of users and service usage. Period.
5. Service is always part of the package
Pay-as-you-go simply doesn’t work as a model for emerging managers, who may need the expertise of more seasoned, connected third-parties to solve solutions at a moment’s notice. Those that are adding new products to their lineups need expert support in bringing them online to get up-and-running quickly. We’ve been fortunate enough at Eze to have built a robust, scalable service operation since inception; as a result, in one recent scenario, we were able to expand a client’s Investment Suite lineup in just a few weeks. Having your provider watching your back can significantly reduce your burden as you upgrade, deal with new market challenges, or want to explore ways to optimize your operation.
We hope this quick rundown makes a case for thinking twice before picking a start-up solution based on price alone. In the coming weeks, we’ll explore more ways you can extract alpha from your investment operations setup – as well as give you some ideas for how to determine total cost of ownership, ROI, and improve your operational alpha. Stay tuned, and don’t forget to subscribe if you haven’t already.
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Michael oversees new sales and buy-side business development in the Americas for Eze Software.
Michael joined Eze in 2000 when he was hired to launch Eze OMS operations in New York. He has held a number of leadership positions, including head of eastern U.S. Eze OMS operations and managing director of global business development. Previously, Michael was a senior associate at PricewaterhouseCoopers. He is a graduate of Boston College, where he received his Bachelor in Finance.