Challenging budget conditions mean that organizations need to be increasingly nimble and responsive in order to prevail over their competitors. The companies that will succeed will be the ones who continuously scan the system and operating environments and can respond quickly and effectively.
Furthermore, we think that smart organizations will be the ones that will continuously audit their applications to ensure they remain relevant, cost effective to both maintain and also to integrate into a fragmented landscape. Other cost pressures that must be monitored include the cost of reconciling data and cost (and risk) of discrepancies between applications that feed decision making processes.
Research indicates that investment managers who adopt state-of-the-art investment management technology can generate 50 to 240 bps of additional portfolio performance through operational efficiency.
We also see there are also opportunities for organizations to differential themselves through supporting their investment management operations. Again, this requires critical analysis of the system landscape.
Firms that operate with lower degrees of fragmentation and a higher degree of integration will better harmonize the view on data, reduce system maintenance costs, mitigate the risk of unreconciled discrepancies, increase data operability, better position themselves to respond to changing market conditions and launch new investment strategies, and, overall, achieve positive business benefits that positively impact portfolio returns.
QCurrently there are more data sources available to people than ever before. How beneficial is this for data teams? What are the greatest challenges borne from this proliferation of data sources?
One of the biggest challenges for organizations is finding ways to put their best data to the best use.
Data teams working as the intermediaries for business units are challenged by two key issues; first, identifying the best data source fit for each purpose, and second, exploiting the opportunities to serve their business clients more effectively.
Another key component of the data challenge is to select the best possible data vendor that can address a firm’s specific needs. While there are a number of monopolistic suppliers in certain spaces, including loans and credit indices, there are new players entering the market, so it’s worth considering making substitutions in order to ensure the most timely, trust-worthy and cost effective sources are being used.
The final piece in this data puzzle is ensuring that the data is being put to good use. It is important to select and implement operational systems that are able to efficiently consume data from different sources.
QAs we all know, IBOR is a topic that has been spoken about for years, yet there is still relatively low uptake from the buy-side. Why do you think this is? What needs to change?
An Investment Book of Record provides critical investment information to asset managers by consolidating the position drivers across all asset classes in real-time.
An IBOR ultimately gives the asset manager a holistic view of the firm’s assets and real-time exposure. Not only does the IBOR provide critical, unambiguous information, it also provides firms with a competitive advantage to use the information to make better decisions faster.
The IBOR provides tremendous value and we at SimCorp increasingly see the buy-side becoming more cognizant of the competitive advantages an IBOR offers.
Buy-side firms now need to consider the changing market conditions that are driving the need for real time information and also think more seriously about their operations for real-time information processing.
Mandated shortening of settlement cycles across global markets are leaving shorter processing times; this goes for securities as well as collateral and margin requirements.
Additionally, global asset managers are grappling with different settlement times which add to the risk, compliance and collateral challenge. It is critical to have up-to-date information on positions readily available. Collateral is also becoming more costly so firms do need to have a clear view of their exposures so that portfolio managers can make the right decisions.
QFor an organization considering implementing an IBOR, what would you say are the true benefits that will be realized for them?
An IBOR streamlines operations for more efficient decision making. In practice, it empowers asset managers to optimize their balance sheets so they can use assets and cash to invest efficiently and also utilize their “idle assets” for collateral or in securities finance operations.
From a control and risk perspective, asset managers can benefit from real-time processing of position drivers so that near-real time valuations can be made.
The IBOR also adds transparency and efficiency to the collateral management process. With real time processing of trading activities, asset managers can gain a complete view of their positions and cash so that their intraday and pre-trade collateral requirements are known. In addition, all backing inventory is known so collateral allocation decisions can immediately be made.
Existing collateral positions can also be evaluated more effectively to assess the need for substitutions, shortages and funding. This is a significant differentiator compared to firms that rely on end-of-day reconciliations.
Industry research shows that improved operational efficiency based on better information processing leads to an increase of investment returns of up to 242 bps, a return that is gained without taking on additional market risk.
While IBOR provides tremendous operational efficiencies to asset managers, firms’ clients also benefit from these better investment returns.
As a single source of truth from front- to back-office, the IBOR is a concept rightfully gaining increased attention from investment management firms – from portfolio managers to heads of investment operations to the C-suite.
Having a golden copy over an entire investment portfolio empowers managers in a variety of ways, including by introducing the capability to manage an ever-evolving list of asset classes and strategies.
While near term resourcing constraints and competing demands often inhibit visionary action and implementation, the ROI over the long term is very compelling for those firms that can coalesce their stakeholders to rise to the challenge.
Operations that rely on end-of-day reconciliations and disparate systems for each asset class are now out of date, and will not be able to answer to the demands of today’s markets, investors and regulators. Asset managers are wise to adopt state-of-the-art technology that provides the ability to view their entire book on a single platform in real time, all of the time. These organizations will ultimately be rewarded with greater efficiency, reduced risk and better information for improved investment decision making and performance.