The process of selecting a Performance Measurement and Attribution system is similar to the search for other types of investment management solutions such as Accounting or Trading platforms. Like all selection efforts, there is a need for organization, planning, and requirements definition, but the selection of a Performance system differs because of the dependency on, or interaction between, other platforms and the Performance system.
For example, if there is a requirement for Performance reporting that is based on investment strategy, then the account structure or the workflow for data enrichment must be considered in the evaluation. In some cases the information needed to calculate performance attribution is most accurately captured in the Order Management System (OMS). In other cases, the accounting system is providing the information needed to calculate performance attribution. Therefore, you need to consider how the Performance system will be integrated into your investment technology architecture.
Another consideration is the dependency on data. What security attributes are required for downstream Performance & Attribution reporting? You should consider how the Performance system interfaces with data providers and how the Performance system leverages data warehouse(s) or data repositories where the reference data may reside.
Due to the interaction a Performance system has with other applications, the selection of the Performance system should encompass a broad perspective on the overall effort, rather than solely on a Performance-centric view. The following are key areas of consideration for a Performance system selection process:
Organization and Planning
-
Define the areas in the organizations that may be impacted by the implementation of the system that is selected.
-
Identify the members of the selection team – For example, Operations, Technology, Portfolio Managers, client-facing Account executives.
-
Set milestone and target dates for the selection process – including RFI, RFP, Vendor demos and Contract negotiations.
-
Determine the need to leverage a 3rd party firm to facilitate the key areas of a selection (vendor short list, requirements database, selection / decision criteria, vendor scoring, vendor “true-up”, coordinate vendor demos, document workarounds, etc.
Requirements Analysis
Gather both high-level and detailed requirements for this new system. Look at possible changes to your business in the next 12-48 months, and how this will impact the processes on this new system. Document and prioritize all the requirements. A comprehensive understanding of needs is essential to vetting and assessing which systems is best for your firm. Important considerations include:
-
Internal Investment Manager reporting requirements versus external Client reporting requirements
-
Workflow, reconciliation, and auditing requirements
-
Industry trends versus requirements unique to the firm
-
Compliance with Industry standards such as AIMR and GIPS
-
Interface requirements or best fit to current or future investment technology architecture including accounting, trading, and data management
-
Functionality related to Performance reporting, Performance methodology and calculations, and Attribution requirements
Metrics to Qualify and Score Performance Systems
Through this process, you’ll be bombarded with requirements, functionality, opinions, and vendor responses. In order to make sense of all this, there should be a structure where all requirements are itemized, prioritized, and weighted. Vendor responses should follow in the same way, and the end result should provide a scoring methodology that is transparent to everyone involved in the process and is weighted towards requirements that are more important to your firm.
Partner with Professionals “who have done it before”
Hopefully you’re not looking at replacing your Performance Measurement and Attribution system very often, so it’s a good idea to partner with a firm who has undertaken this effort with greater frequency, and who understands industry trends and the systems and solutions available. Firms who lead these selections should be able to leverage other Performance selection efforts (in terms of the planning, requirements and metrics) and then be able to customize and tailor a study to your specific needs. The firm should also have hands-on experience with the leading solutions in order to fully understand the product functionality and potential “workarounds” that a vendor may gloss over.
InvestTech is a leading investment operations and investment systems professional services firm focused on serving global asset management companies. We have assisted numerous investment firms to evaluate, select and implement performance measurement and attribution systems. We provide firms with expertise in front, middle, and back office applications and processes. Our structured vendor evaluation approach applies our hands-on implementation knowledge and experience with the leading products to ensure the best alignment between your firm's needs and vendor solutions. Please contact Christina Benoit at 781-545-6822 or benoit@investtechsystems.com to learn more.
We recently completed a number of outsourcing related initiatives, and have compiled our insights on industry trends and current vendor service offerings for the buy-side of the market.
-
Outsourcing finally comes of age for the buy-side as seen through a wide range of expanded offerings from small vertical service providers to massive all-inclusive “lift-out” successes.
-
Notwithstanding this momentum, service providers are challenged to present and deliver competitive, coherent outsourcing strategies that cover the full gamut of operations services with a single integrated platform.
-
Outsourcing providers continue to offer customized component-based solutions to fit clients’ needs.
-
Both provider solution offerings and pricing remain competitive as the key vendors drive for market share in the different vertical outsourcing niches.
-
Many outsourcing providers are challenged to achieve multi-tenant cost efficiencies through workflow and process automation vs. traditional resource-based processing models.
-
Outsourcing providers are re-tooling and integrating their offerings to ensure their solution strategy results in a viable end-to-end platform. These efforts include enterprise data management transformation and integration projects designed to provide outsourcing clients direct access to high-quality data services.
-
New players are entering the game from multiple directions via vendor SaaS, extended BSP offerings, new cloud technology-driven services, and through acquiring niche vendor products that enhance offerings.
-
Opportunities continue for providers in the areas of alternative investments, derivatives services, and data management. These areas are being addressed through heavy customizations and product acquisitions.
We have collaborated with asset managers of all sizes and global reach to carefully evaluate and align the outsourcing provider offerings with their business and technology needs. Overall, the trends seem to be pointing upward towards continued expansion in outsourcing service offerings. This is likely to drive increased success for attracting new clients into the outsourcing delivery models. Click to read more about our recent project to select an Outsourcing Service Provider
Do you have plans to evaluate outsourcing in the next 12-18 months and what is driving this decision?
Why the surge in investment operations outsourcing?
Economic downturns in the last decade have impacted the way IT and operations budgets are allocated for nearly every organization. Likely, there will be lasting effects into the foreseeable future. Many companies are trying to balance the need for best in class technology with a tight budget.
The pressure to generate higher margins, maintain regulatory compliance and meet the demands of an ever-changing technological landscape is great for today’s asset manager. These items coupled with other strategic factors have led to an increase in outsourcing.
The answer for many is to outsource their investment management technology.
Competition for assets and greater attention to investment performance is driving asset managers to re-focus on their core competencies of product development and investment performance. Companies need to stick to what they are good at!
For the asset manager, maintaining or increasing profitability in turbulent markets has encouraged better matching of costs to revenues with a business model that migrates from a largely fixed cost to a more variable cost structure.
For asset managers with more complex products, industry best-of-breed technology is crucial. Simultaneously, the cost of acquiring and implementing products to support multiple asset classes, and for finding experienced, competent staff to develop processes and ensure regulatory compliance keeps rising.
While many investment managers have throttled back their IT investment during the reign of uncertainty of the past 12-18 months, the need for new or updated applications and systems development requirements have forged on.
With internal and external regulatory requirements expanding, firms are working to address internal workflow, risk management / measurement capabilities and OTC derivative processing. “Institutions aren’t waiting for regulation. They are driving the requirements of what managers need to provide and there is more emphasis being placed on a manager's infrastructure, avoiding headline risk and staying ahead of increased regulation.”These types of internal initiatives can fall flat without sound data management architecture in place.
How do you know your business is a good fit for outsourcing?
1. Do you have a solid reference data foundation?
2. Can you aggregate accurate, consistent data (virtually or physically)?
3. Do you have technological or operational challenges?
The Outsource Continuum in Figure 1 (click here for larger view) depicts a number of outsourcing relationship options asset managers can select and the roles and responsibilities associated with each offering. InvestTech has conducted a number of
reviews of the leading North American and European outsource service providers. These in-depth evaluations reviewed the depth and breadth of their offering, the applications, processes and industry utilities employed, a profile of their new client conversion and client support capabilities and how each is positioned on the outsourcing continuum. The reviews have provided insight into how each provider services their clients, and the relative functional and technical strengths and weaknesses of each provider. These insights are valuable to our clients that are considering outsourcing all or a part of their internal operations.
Has your firm considered outsourcing? Please share your experiences by commenting below.