Investment management firms that use managed and/or hosted services rather than implementing and maintaining front- and middle-office systems in-house can improve competitiveness as well as reduce costs, according to investment software solutions provider Charles River Development.
In a new white paper, ”Best sourcing – Turning the front-office platform into a competitive advantage, the firm states that ”best sourcing' – selective use of managed services – frees up internal resources, allowing buy-side firms to focus on core competencies, pursue new market opportunities and deliver better results to customers.
This is necessary, the report argues, because in the wake of the financial crisis, investment management firms face new challenges including tougher regulatory requirements, increased competition and pressure to reduce costs. It suggests that to remain competitive, firms must find ways to improve their operational efficiency. Best sourcing is identified as key within this.
The paper sets out four key areas of best sourcing for investment management platforms: application management, application hosting, integrated data services and FIX network services.
“Fifteen years ago, the best sourcing approach would have been unthinkable to buy-side firms,” said Ed Fitzpatrick, director, managed services, Charles River Development. “What's changed is that service providers have built on their original strength of economies of scale; developing the deep application and integration expertise, service packaging and delivery models necessary to meet the needs of a wide variety of buy-side firms. “
Charles River cites the example of Bridgeway Capital Management, a US-based quantitative investment management firm that uses Charles River's application management and FIX network services.
“We want to keep our firm small in headcount and focus on asset management,” said Chuck Bates, operations, Bridgeway Capital Management. “We don't have an internal IT team, so it's great to have experts to manage the Charles River system for us.”
Fitzpatrick added that, through outsourcing IT maintenance, buy-side firms can gain expertise and support resources that can be difficult to build and maintain in-house.
“Service providers have built on their original strength – economy of scale in infrastructure – and developed the deep application and integration expertise, service packaging and delivery models necessary to meet the needs of a wide variety of buy-side firms. Now that managed services have come of age, buy-side executives need to assess any new business initiative as a decision point to consider best sourcing key front-office technology and/or services as a strategic tool to gain or maintain a competitive advantage,” wrote Fitzpatrick.
Charles River has some 300 clients in 38 countries in the institutional asset and fund management, alternative, wealth management, insurance, banking, pension and custody markets.