Traditionally, best of breed in the investment management industry has meant buying a specialised system, often for a specific asset class, to carry out a specific range of tasks and sometimes for specific geographies.
These tasks include trade execution, exception checking and handling, through to analytical and reporting functions. Within any modern asset management business, analytical information is part of the central foundation. It is used for many reasons. For example, to aid decision-making, provide insight into the underlying risk or to communicate with clients and stakeholders.
Good analytics, in the right form, are very powerful. Used correctly, they help to support the process of winning new clients, retaining existing business, meeting investment targets and increasing assets under management. But as the world of asset management has evolved, perhaps the best of breed approach is revealing some limitations. Multiple systems have led to increased IT complexity, which is hampering the ability of the business to operate in the most efficient and effective manner.
Whether best of breed is applied to an asset class, geography or strategy, it essentially means a commitment to not making any compromises on functionality. The asset manager typically expects at least an 80% fit between the system and their business – and as much as 95% in certain key areas. If the asset manager does not deliver against its criteria, it could mean having to compromise and the system no longer viewed as best of breed.
A main focus for the investment community is creating consistent and complete reference data that can be distributed throughout the organisation. To achieve this, asset managers need to ensure that all processes and systems are starting from the same point. Many who have adopted best of breed thought they were gaining a holistic view, only to find that they are facing new challenges, in the form of data management.
In an effort to simplify their systems and IT landscapes, some investment managers have sought to reduce the number of analytical engines they own.
But can broader and fewer systems deliver the expertise and business agility required? The answer for most companies is to try and make better use of their existing applications, evolving to smarter systems that are quicker to implement, and remove expensive and large-scale upgrade programmes. Many asset managers have tried to move away from best of breed due to the technological complexity implications. However, the technology can be simplified by outsourcing, as long as the data can still be centralised. Moving away may simplify an asset manager’s system but more generic solutions may mean reduced functionality and the cost of deployment can be much higher.
As the industry continues to evolve to meet the needs of investors and regulators, this fragmentation of IT and business processes will increase. Applications today need to be smart. They must have strong elements of interoperability and be able to protect and extend the existing investments made. It is now uneconomic and, more often than not, too risky to consider consolidation of applications to a small number of large, all-encompassing solutions.
The ideal solution is a platform that brings together the results and output of the existing specialist systems efficiently, maximising the data therein and realising their full potential. By adopting this approach, asset managers can unlock the value of their best of breed systems and make them work more effectively for stakeholders and clients.
Peter McKenna is market development director at DST Global Solutions
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