Olmstead’s latest perspective “The Race is on: Acquisitions and the Evolving System and Service Landscape”, reviewed the recent press regarding single platform (front-to-back) solutions; some having been enabled via strategic acquisitions and others developed over time as an intentional build. As a result, asset managers have found themselves with more questions than answers, primarily – is the front-to-back single platform concept the next logical evolution?
Looking back at the evolution, there was a time when “best of breed” solutions ruled the day across front, middle and back offices, with firms exploring a number of singularly focused niche solutions with advanced capabilities intending to solve a direct business need. As the concept of IBOR took hold, firms gravitated to the adoption of a “single source of the truth” for positions and cash, and platforms began blurring the lines of middle and back offerings introducing the initial concept of single platform solutions.
Although one could presume that the next logical development in the evolution of the single platform would be to extend into the front office and capture the full investment lifecycle, this has raised more questions and considerations.
What defines a single platform solution? Given the varying product options raised recently, there doesn’t appear to be a single definition, particularly with nuances on the word platform. For some, this is defined as a single “technology” solution, while others offer a blend of technology and service-oriented capabilities to complete their front-to-back offering. Additionally, the depth of reach and options may vary with front office capabilities extending beyond OMS into trading and analytics; and back office extending into custody services. As a result, asset managers will struggle to complete an apples to apples comparison across products without addressing the cultural issues of insourcing vs. outsourcing, and varied definitions of scope and capabilities.
How will a single platform solution continue to provide differentiating capabilities? Depending on the solution and product depth, some of the single platform solutions offer complimentary or advanced services across front-to-back which can make a considerable impact. However, given that “best of breed” solutions are better positioned to singularly focus their attention and R&D dollars on solving the latest market requirements, and introducing new and improved capabilities for their respective niche, will single platform solutions suffer a dilution of R&D focus and begin to lag over time?
What impact does a single platform solution have on operational risk? With the initial introduction of single platforms for middle and back office, firms often weighed the benefits of consolidation against the risk of losing a backup or contingency platform. Is this risk further exacerbated by the addition of the front office into the mix?
Is it possible for a single platform solution to satisfy the diverse needs of Front-Middle-Back? For many asset owners or those with limited complexity across the board, this concept is clearly a great alternative to disparate platforms. However, for larger firms with a more diverse asset/product/market mix this decision, although attractive, may not be so easy. While there has been movement at the front of the house towards OMS consolidation, the historical trend reflects many firms ultimately settling with two platforms split by equity and fixed income. In the back and middle office, firms specializing in esoteric markets or securities, are often leveraging one or more providers due to asset specific or in-region expertise. Platforms offering a greater level of interoperability will allow managers to migrate their business over time.
How may FinTech disruption impact single platform solutions? Though many existing service providers and technology vendors have internal teams exploring opportunities to better leverage AI and blockchain technologies, it’s only a matter of time before we see new entrants. While the asset management industry as a whole is among the last to be materially disrupted by FinTech, it’s not difficult to imagine the emergence of new, strategic partnerships, or introduction of niche players resurrecting the trend of “best of breed."
In conclusion, though most can agree with the notion that a front-to-back single platform solution is the next logical step in the evolution for investment managers, the impacts, benefits and perhaps compromises it may raise are something each manager will need to assess individually. Ultimately, this is a decision that should be explored carefully and answered based on the unique makeup and strategic drivers of each firm.
The following are questions for consideration as your firm assesses which solutions may be a fit:
- Is there a “single source of truth” for holdings, cash, transactions and reference data in your firm?
- Do you struggle passing data through your organization in a timely, efficient manner?
- Can you continue to scale and support your current technology infrastructure?
- How important is it to your firm to diversify across providers from a best of breed or risk perspective?
- How agile is your operations to adapt to new products, markets and asset classes?
- Do you see your operational functions and custom processes as truly differentiating?
- How comfortable is your firm with relinquishing control of in-house functions?