The Buy-Side Legacy IT Hangover: Finding the Cure for Alpha, Compliance and Growth Impediments
The choices that investment managers make about their IT architecture can affect their success or failure to compete for market share. In the worldwide race to attract assets and revenues, global asset managers all have the same goals. They need to be able to meet the needs of their clients and local regulators by achieving investment performance returns and adhering to compliance guidelines. The risk of not doing so means loss of assets and potentially incurring heavy fines, but more critical the inability to sustain profitability and growth.
As we found in our recent TABB Group report “Breaking down Buy-Side Barriers”, the North American investment management community wants to align their portfolio and trading technology suite with these attributes. As a follow up, TABB Group set out to determine whether there were any differences with the rest of the world buy-side in terms of technology approach and the impacts of that approach. While there were some notable differences, meeting the overarching need to attract assets with an integrated technology approach remains universal. One third of asset managers outside of North America have adopted a single vendor, single platform technology. The same percentage of firms in our North American outreach had a strategy of single vendor, but still went across multiple technology platforms.
Our outreach further identified several obstacles to alpha generation, compliance and growth ranging from difficulty in completing their pre-trade compliance checks, errors in executing target asset allocation weightings, and challenges in implementing new geographies and/or new instruments given an investment managers technology architecture. The most pain is experienced by the firms maintaining legacy systems, and is caused by the lack of integration across those systems. 30% of asset managers continue to maintain legacy platforms despite the fact that the technology plays a contributing role in causing trade delays and errors.
Every IT strategy approach has its advantages and disadvantages (with the exception of having no strategy), but one thing is clear — investment management firms of all sizes and types need immediate access to accurate trading positions and cash balances across all of their systems.
As the pressure to compete for worldwide assets becomes impossible to resist, more investment firms will move to the single vendor, single platform approach in order to achieve investment returns across asset types; comply with regulation and client demand; and grow their product set.