Highlighted by the recent activity of acquisitions, service providers are investing significant resources in developing their capabilities to provide investment managers with an end-to-end platform to support their operating model. The goal being a comprehensive, integrated technology solution with a single version of the truth that can be leveraged to support a manager’s needs across the increasingly blurred lines of the front, middle, and back office. Assessing this evolving landscape is integral in establishing the operating model that will best support an investment manager’s growth strategies.
Acquisitions: Challenges & Opportunities
In order to deliver on the single platform solution, the recent acquisitions will have a number of integration challenges to address. They will also have a unique opportunity to combine these established products, not only to address clients’ data requirements, but to deliver new products that were not possible prior to the acquisitions.
Managing People, Culture, and Clients: There will be a number of organizational challenges including building a cohesive go-to-market strategy across teams from very different sides of the business. If the provider can effectively manage the people, technology, and cultural integration challenges, they will be positioned to provide clients with a unique front-to-back office operating model. Although there may be significant overlap amongst the client base, the newly acquired firms will add talent, new skill sets, and established front office relationships. When properly aligned, there is a tremendous opportunity to grow and evolve a single platform solution while also offering clients new products that enable investment managers to more efficiently generate alpha. An example of where this could be quickly realized is in the linking of custody data to front office platforms providing real time views to support collateral management, cash investments, and risk analysis.
Outsourcing Optionality: For investment managers, it is critical to have a clear view on their sourcing strategy as their own unique requirements will often drive which platform is best suited to support their growth strategy.
Both State Street and SS&C have deep roots in the services business and likely their offerings will provide optionality for outsourcing. Although Olmstead firmly believes clients need to consider a number of factors when evaluating an operating model transformation decision, outsourcing is clearly one of the primary considerations. For clients contemplating broader transformation initiatives, having the option to outsource components of the operations can be a key criteria.
Another interesting trend in outsourcing, is the development of “modular” solutions that a number of service providers and technology firms are offering. These are designed to deliver targeted solutions to address manager’s key pain points (such as derivatives processing or regulatory reporting), while leaving intact a strong operating platform that does not otherwise require significant change. These solutions can provide clients with the benefit of solving for a specific need while avoiding a larger, more complex outsourcing project.
Data Integration: Technology vendors with home grown integrated platforms have had the benefit of years of planning and execution in developing technology models where data has been leveraged across the various front, middle, and back office systems. From inception of the original design, these solutions have been engineered to support an integrated set of solutions across the investment management lifecycle. Service providers who have acquired existing platforms will need to move quickly to rationalize both redundant and disparate applications while developing new solutions for the marketplace. To be successful, they will need to deliver a tightly integrated platform with trusted data that managers can rely upon for real time portfolio analysis and decision making.
Deciphering the New Landscape
Operational transformation is front and center for every investment manager today. As noted, Olmstead sees a positive trend in service providers and technology vendors investing in new solutions. The challenge for investment managers is designing their new operating model while the landscape is still evolving. To make the appropriate decision regarding their operational transformation, investment managers will need a clear view of their current state and a thorough understanding of the range of possible solutions given their specific strategic objectives. Equally important, will be aligning the vision across all key stakeholders to ensure the designed end state solution will be a platform that enables their long-term growth strategy.
Additional strategic questions worth considering:
- Will our firm need to consider outsourcing in order to optimize growth strategies and does that narrow my possible strategic partners?
- Can any one technology platform satisfy all of our needs or is it likely that our business model will require interoperability with other 3rd party platforms?
- What are the benefits and risks of partner consolidation?
- Do we fully understand how integrated data across front, middle, and back office functions can facilitate real-time decisions that improve our performance?
- Realistically, how long before we see any tangible new benefits from these acquisitions?
- How much change will our firm undergo in terms of new products, asset classes, and geographies and can the existing operating model support these initiatives?