Buy-Side Business Attribution: Assessing Costs and Quantifying Value

C-suite executives at asset management firms are encountering hurdles that present an unprecedented level of complexity to the running of their business. Posttraumatic flashbacks of the 2008 financial crisis and its impact on buy side budgets continue to plague chief financial officers and other key decision makers. Even as the economic environment has improved in certain areas, the after-shocks - triggered by recent volatility and uncertainty in the global markets –threaten even the best-laid 5-year strategic plans. The resulting regulatory reactions layered across multiple geographies and investment strategies require a level of quantitative intelligence to support compliance and strategic business decisions that is difficult to achieve.

While it is widely acknowledged that the amount of data available to investment institutions has never been greater, it is less clear that firms are actually converting the data they possess into actionable business intelligence about their areas of strengths and weaknesses. Much like the practice of performance attribution that measures portfolio performance at the most granular level of an investment in an individual security or currency, institutions need the capability to quantify the performance effect of every business decision they make. Only by quantitatively identifying and calculating the relative value of processes, products, vendors and people, investment management firms can measure the profitability of their organization. The ability to convert revenue and expense data into business insights about what’s working and what isn’t distinguishes those firms that are decisively driving their growth.

This TABB Group note considers some of the key issues facing the industry at a macro level, how firms are responding to them in terms of investment prioritization, and what opportunities exist for them to position themselves for the future. How a firm tracks expenses, revenues, and fee outflows across various business units, systems and/or geographies is often based on factors as diverse as their ownership structure or even cultural philosophy. But one thing is certain - having an infrastructure in place to aggregate and measure their disparate revenue and expense data across the enterprise in a consistent way is critically important to investment management firms as they strive to grow despite the countless challenges they are facing today.