Front office technology is a fast-evolving industry at the best of times. Throw in a pandemic and a workforce starved of physical desk top real estate and real change starts to happen even faster. At the 4th Investment Implementation Summit, a panel of industry practitioners discussed key trends in front office technology. Not surprisingly, simplification and efficiency were flagged as key drivers of transformation projects, designed to streamline systems, avoid unnecessary duplication and reduce operating costs.
One firm that has recently undertaken a significant change program is IFM Investors, its multi-asset transformation programme spanning the firm’s entire operating model across front, middle and back office, including data management and technology infrastructure.
According to Lounarda David, Chief Operating Officer at IFM Investors, gaining scale and efficiencies through simplification, optimisation and innovation were among the key objectives underpinning the operating model reconfiguration.
“Our technology infrastructure and operating model were very complex […] Designing the future state with the objective of creating more flexibility and simplifying the architecture of our IT infrastructure were quite critical, but so was simplifying the data integration and the integration of the technology systems. The other objective was optimisation, so really looking at our synergies, processes and third parties, with the aim of creating more efficiency and cost-effective arrangements and push as much straight-through processing as we can,” she said.
Across the board, asset managers are increasingly looking to converge order management systems, execution management systems and portfolio management systems, while there is also a growing preference for multi-asset class solutions, Manu Sharma, Trading Solutions head of APAC Sales at FactSet told the conference.
From a design perspective, the overwhelming preference is for solutions that are cloud-based and offer open-sourced, so they can easily slot into a multitude of systematic set ups.
Indeed, the importance of interoperability – a concept facilitated by having robust and capable Application Programming Interfaces (APIs) – is increasingly flagged as critical to the success of technology solutions going forward. The interoperability component allows for the asset managers that wish to do so to retain a best-of-breed approach that is suited to their particular business model, trading desk or portfolio management team while other core functionalities are streamlined.
Managing the costs of data
Market data was flagged as another area where significant cost-savings could be made, particularly in cases where organisations pay multiple fees to feed the same data sets into different systems within their organisations.
The conference was told that often, prices depend on the person who negotiated a particular deal and a large organisation could have multiple arrangements with the same vendor at different prices – which is information that is typically not volunteered by the market data vendor. To manage a lack of transparency in pricing and contracts, conference participants stressed the importance of having a solid data governance framework in place.
“We went through the exercise of looking at our third-party data agreements, as well as reviewing the use of market data internally and by our system vendors. Like many global organisations, we had multiple arrangements and duplicate data points, some of these arrangements were surprising,” David said, who said that upon identifying the full extent of it, the firm had subsequently identified and renegotiate essential external data arrangements in line with its data strategy.
“We identified the external data sets that were important to us and renegotiated those arrangements, leveraging the scale of relationships that we have across the organisation globally. In addition, to make sure that this was not a one-off exercise, we have set up a data capability team which is responsible for managing IFM’s data strategy and governance including managing data vendors and challenging the business when a request to buy a new system or data point comes in,” David said.
“It’s about questioning the value and impact of a new data point. Sometimes, we may have similar data from a different source already integrated into our system; so again it is about simplifying and optimising our world,” she said.
Similarly, panellists urged market participants to not pay for more than they actually needed. “There are established products out there with an ‘all you can eat’ buffet style pricing system. If you are using 100% of that data, then good on you, but I would guess that very few people are, there are alternatives now where you can actually pay per play if you like. That’s more of an ‘a la carte’ approach, which can help from a cost perspective,” Sam Willis, Senior Trader at Dimensional Fund Advisors said.
FactSet’s Sharma said that while having access to quality data is a prerequisite, actually being able to derive insights from that data is where true added value comes in. “There is certainly no shortage of data, the key is to transform data into actionable information,” Sharma said. He added that while machine learning and artificial intelligence are increasingly explored within trading desks, it’s important to set clear expectations around the value these applications can add.
“The myth around machine learning and AI is that it is a silver bullet that allows you to dump a whole bunch of data into a machine that subsequently improves trade performance. In reality, it is more of a continuous improvement process that augments the trader by offering additional tools to help improve performance,” Sharma said. He said that in order to obtain high quality and quantifiable results from machine learning tools, traders will need to work with their internal data scientists or indeed their vendors to ensure they clearly articulate the problems they are looking to resolve.
The technology debate was part of a broader agenda, which covered investment implementation efficiencies from investment strategy through to execution. It discussed how market participants manage exposure management; foreign exchange; equity overlays and fixed income in detail, while also covering topics including market liquidity risk; front office technology and how best to deal with market outages.