IT an impediment to alpha, compliance and growth

SimCorp, a provider of investment management solutions and services for the global financial services industry, today announced the results of a new TABB Group study, entitled ‘The Buy-side Legacy IT Hangover: Finding the Cure for Alpha, Compliance and Growth Impediments’. It says the survey explores the challenges to growth that global (non-North American) firms experience based on their choice of IT strategy and follows from an identical survey conducted among North American firms in February 2016.

It says that similar to the findings of the North American survey, the study showed that manual processes remain a barrier to efficient alpha generation; 90 percent of firms stated that they have to resort to manual processes due to inefficiencies of their IT platforms, leading to data and reconciliation errors. Furthermore, the survey shows that trade delays caused by inadequate technology could account for opportunity costs of up to 50 percent of revenue.

The study also highlighted challenges faced by buy-side firms with pre-trade compliance. According to the findings, over half of investment management firms experience technical problems in executing pre-trade compliance checks, exposing them to avoidable financial and reputational risk. Of those, 40 percent of portfolio managers cited lack of systems integration as the main cause resulting in erroneous data in front office systems. In North America, this figure amounted to 50 percent.

Other findings showed that 58 percent of non-North American firms face challenges setting up operations in new geographic locations and new asset classes, compared with 66 percent of North American firms.

Both surveys showed a high correlation between difficulties experienced in establishing operations in new geographies and asset classes and operating on a legacy platform.

Dayle Scher, senior analyst at TABB Group, said: “As investment organizations and their clients continue to invest in new jurisdictions and asset classes, the supporting IT infrastructure must be able to support growth and scale. Added to this the growing regulatory pressures that are emerging globally means those who choose to implement integrated investment management solutions will be those that can best navigate an increasingly competitive environment.”

Adding to this, Martin Engdal, director, global product marketing at SimCorp, commented: “For many firms, legacy investment management systems continue to be the cause of delays in setting up new geographies and instrument types, running pre-trade compliance checks, and front office staff spending time on manual processes and error handling rather than alpha generation. These findings show that an integrated solution that utilises a single data repository is the most effective way to avoid all these challenges facing investment management firms.”