SimCorp, has announced the thought-provoking findings of its InvestOps commissioned whitepaper, titled “Front to Back: Optimizing Cross-Asset Investment Operations”. The European-focused report finds client demands, regulation and cost pressures to be the biggest drivers of change, and points to the need for a simplified operating model to weather the current storm of regulatory and market challenges.
The InvestOps whitepaper surveyed 100 European Heads of Operations from asset management firms, hedge funds and institutional investors. The report explores the convergence of the front, middle, and back office, and how it redefines the role of data and investment management systems. It follows a similar survey based in North America. Both whitepapers delve into buy-side firms’ current IT operations and their plans for technology infrastructure in the immediate future.
With echoed concerns from both continents about the need for increased automation across activities such as corporate actions, collateral management and alternative investments, the latest findings provide colour on the shared issues troubling the European and American asset management industries. In fact, automation has become such a challenge for operations teams across the buy side, that it featured as one of the top strategic objectives for both European (46%) and North American (54%) Heads of Operations.
Regulatory challenges also featured high on the agenda. Interestingly, Solvency II poses the most operationally problematic regulation for 74% of European buy side firms. Meanwhile, North America’s preoccupation with Dodd-Frank featured second highest in that region (61%). One regulation that is looming over both European and North American firms as the 2018 deadline nears and the implementation window narrows, is MiFID II. The global regulation continues to dominate as one of the most demanding regulations on operations and compliance across both Europe (67%) and North America (64%).
As the adoption of multi-asset class models continues globally, the growth of financial instruments in the alternative investments space is multiplying rapidly. According to the survey respondents in both Europe (45%) and North America (36%), private debt is considered the most popular source of liquidity. Derivatives are the next-most popular source for European firms, whereas North American firms show a preference for securities lending (over derivatives), as the second-most popular choice. The findings indicate the very real need for core investment management technology to extend beyond cash, equities and fixed income, if firms are to successfully capture these sources of liquidity, offering added value to clients.
Marc Schrȍter, Senior Vice President, Product Management comments: “The findings cover many of the operational frustrations and pressures that buy side firms are facing. It is becoming very clear that to thrive in the current conditions, firms need to review and consolidate their technology infrastructure, if they are to achieve the level of automation desired and succeed in handling a wide range of assets efficiently. This is the strategy we believe will help firms optimize and ultimately tackle market challenges, to stay ahead of the competition.”
Other key findings from the InvestOps European Report include:
- Most popular investment area
For European firms, front office technology (78%) is at the forefront of their wish list, whilst North America ‘s focus remains on data analytics (76%)
- Change management
European Heads of Operations stated ‘poor change management champions’ as the obstacle to operational change. Whilst in North America the issue appears to be a bottom up, with ‘employee resistance’ being cited as the biggest hurdle.
- Operational Responsibilities
Heads of Operations in Europe state that their number one priority is to add value to clients (87%) whereas the majority of the respondents in North America are focused on driving down the cost of operations to improve the bottom line (57%). Both regions’ secondary focus is to support new business lines.
- Outsourcing challenges
The outsourcing experience leaves a lot to be desired according to European, and to an even greater extent, North American firms. The situation appears less than ideal, with shared struggles relating to outsourcers lack of expertise, inability to serve flexibly, deliver custom requirements, inefficient workflows and even business continuity concerns.
Lauren Harrison, Conference Director, InvestOps Europe: “Amid growing regulatory pressures, it’s no surprise we are seeing firms look towards more technological solutions to these issues – including automation. Legacy infrastructure needs to be replaced with agile solutions, if firms want to meet the increasing challenges they are facing from regulation, as well as competition. Only by having the most efficient systems in place, will buy-side firms be able to fully optimize their operations.”