With the financial crisis delaying investments into fund accounting and associated middle- and back-office systems asset managers and asset servicers are now ramping up spending to improve their efficiency, accuracy and automation of their systems, according to a whitepaper from Aite Group.
Of the 37 asset managers and 21 asset servicers interviewed for the study, which was sponsored by SunGard, approximately a third of the respondents said that their firms expect to invest in their back-office IT, while a similar number said they would review their back-office IT investments in the next three years.
“That’s a fairly positive response that nearly two-thirds of the firms would be assessing their technology,” said Virginie O’Shea, senior analyst at Aite Group and co-author of the whitepaper. “Those who said they would not reassess their technology may have assessed their technology in the last 24 months.”
The firms looking to retire systems are investigating reconciliation technology, she said. “It would consist of running old and new systems in parallel while reconciling the older technology with the newer technology.
According to research published by Aite Group earlier in 2014, 59% of the polled asset managers and asset servicers planned to spend less than US$50 million on IT investments, while 6% planned to spend between US$50-100 million, 4% said US$100-250 million, 2% planned to spend between US$250-500 million, and 6% said more than US$500 million.
Asset servicers had more concerns about costs, as 63% complained about the cost of maintaining their systems compared to the 22% of asset managers who did so.
The research also brought out other clear investment divides within the buy-side community for issues such as outsourcing and compliance.
“For those who had outsourced before, they likely would outsource further,” said O’Shea. “For the firms what decided not to outsource, they thought it would be better to keep their processes internal.”
There was a high amount of interest to outsource things like transfer agency, she adds. On the other hand, “areas like over-the-counter valuation, they have kept internal. These firms also opted to keep their collateral management in-house.”
When it comes time to invest in compliance, the study found that approximately half of the firms interviewed invested in projects “to fight various fires,” while the other half took a more strategic view and focused on data aggregation and data quality improvements that could be sewn together with compliance initiatives.
“I’m not sure that this divide is surprising rather than demonstrating the different approaches firms take to the technology universe,” explianed O’Shea. “Some have the mentality they can join things together while others prefer to address things in a more localised manner.”
However, the most common pain point for asset servicers and managers regarded data aggregation, which firms will make a priority in the next three years, according to the report’s authors. Some of these projects, said the report, are improving the responsiveness of a firm’s risk calculations by accessing data from different parts of the business quicker, while also providing front-office support for pricing and tracking collateral.