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Impact Investing

IPE special report May 2018

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Upgrading portfolio management systems

As organisations look to replace earlier generation order and portfolio management systems, or acquire them for the first time, they now want a wider range of functionality and they want this functionality integrated for the straight-through processing of transactions, says Tim Rudlin, director of international business strategy for London-based DST International (DSTi).
There is an increasing requirement for risk management tools for optimising portfolios and investigating the risks of future strategies, as well as for performance measurement and reporting, he says. In February, DSTi acquired New York based Askari, the risk management software specialist arm of financial services giant State Street, and will offer its risk functionality as part of its investment management applications suite. But just as important as the functionality is the need to ensure the automated flow of information through the system for efficiency and to reduce operational risk, says Rudlin.
“Even if a supplier doesn’t offer all the components that an organisation requires it should have an integration strategy, with its system having the hooks to link into other systems,” says Rudlin.
Cameron Field, managing director, sales and marketing for Europe and Asia Pacific for Boston-based investment management system supplier Charles River Development, agrees that it is essential for organisations to “look at the ability of a system to interface easily with existing and future systems, and its ability to share data, streamline processes and facilitate straight-through processing.”
Some specialist software suppliers have formed partnerships with each other to create interfaces between their systems to so that they can jointly offer organisations a broad range of functionality without the problems of integrating disparate systems. Paris-based Sophis recently formed an alliance with trading systems supplier TradingScreen to integrate the latter’s software for accessing multiple exchanges from a single terminal with its portfolio and risk management system. TradingScreen will handle order routing, execution management and clearing, and will pass the trades through to the Sophis Value system for all portfolio and risk management.
Cost is often a major issue, especially for pension funds, when considering portfolio management systems. However, costs should be weighed against efficiencies gained as a result of the new system, says Field. “Look not only at fixed costs for hardware, software, etc, but also at the costs savings_of personnel who can now focus on other responsibilities because the system now automates various tasks and processes.”
Other important issues to consider says Field are the ability of the system provider to keep up with, if not ahead of technology trends and industry standards and protocols, and “scalability” – how will the system grow with the business? Modern multi-tiered computing architectures, where the system is broken down into components such as the user interface, processing engines and database(s), make it easier to add more components to a basic system in order to scale it up to handle more users, increased volumes or higher performance requirements.
For pension funds that distribute their assets across several managers the biggest issue is consolidation of information and compliance checking, says Rudlin. “Having a compliance checking engine in-house is a huge benefit,” he says.
In terms of back office functionality, outsourcing is the growing trend. DSTi for example reports that it is selling almost as many systems to back office outsourcing operations as it is to individual pension funds or asset managers. These operations can offer a range of services from simply outsourcing the IT, to full management of the back office processes.
Other aspects of the system can be outsourced as well. A new model has recently evolved for the delivery of business applications called application services provision (ASP) whereby a software developer offers functionality online for rent. This can have the advantages of low upfront costs and avoiding the need for in-house IT expertise and support. A growing number of financial applications are now becoming available as ASPs.
In March, New York-based Bloomberg added advanced risk functionality to its trade and portfolio order management systems. The risk analytics are provided by leading enterprise risk software specialist Algorithmics and are fully integrated with Bloomberg’s trade, order management and position keeping applications. Previously, a lack of risk capabilities forced organisations that use Bloomberg for market data and other analytics to look for a separate portfolio management system to provide functionality such as portfolio valuation, tracking error, performance attribution and what-if analysis.
“Now we can offer a fully integrated solution, with pre-trade support, electronic trading, deal capture, position keeping and profit and loss monitoring,” says Tanys Lancaster, sales executive with Bloomberg.
Other suppliers of portfolio and investment management systems include Advent Software, Integrated Decision Systems, Misys Asset Management Systems, SimCorp, SunGard Investment Management Systems, Trema, Thomson Financial and SS&C Technologies.

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