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Asset Management

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Can Operational Efficiencies Increase ROI?

Buy-side investment managers examine ways to improve their bottom lines with strategic technology spending

Return on investment was a hot topic on the minds of buy-side investment managers who gathered at an ISITC-IOA conference this week to discuss the possibility of greater operational efficiencies.

One universal theme was the need for internal straight-through processing between the front, middle and back offices at investment-management firms.

Stephen Mellas, Goldman Sachs Asset Management's managing director, explains that communications between operations managers and portfolio managers is the foundation for STP. The front office must embrace technology in order to obtain greater efficiency and reduced costs, he says, but adds that front-office adoption is often challenging.

"Make sure that whatever you're proposing has some benefit to that person or to the larger desk as a whole," Mellas says. "For example, show a trader that by putting in a straight-through solution, you can move a trader's assistant off the desk to reduce head count or make the assistant a full-time trader so you now have more resources. In addition, if you put the trade into a system, you're going to have a correct and updated trade positions."

However, Mellas notes that there is an increased onus to have reliable technology, otherwise traders will be frustrated and may not be receptive to new trade processes.

While the need for adequate technology is clear, State Street Research & Management Company's George Crane III notes that technology dollars in the current market are decreased, especially in light of the increased regulatory pressures from the SEC such the US Patriot Act compliance.

"If it is regulatory, you've got to do what needs to be done," Crane says. "Regulation is going to have an impact. You need to plan for it, but you need to discern discretionary from quasi-discretionary, and you may need to make some trade-off decisions in terms of priority."

Crane says that one way for buy-side firms to meet regulatory standards without superfluous spending is to leverage the technologies of partnering banks and custodians as part of the services that they provide. In return, he says, these partners will see business growth based on their willingness to collaborate and work with their buy-side counterparts.

The vendor community can also be tapped for partnerships and collaboration, says Steve McSweeney, the chief operating officer at Harvard Management Company. McSweeney explains that his firm values vendor relationships, and says that Harvard would prefer to buy off-the-shelf products unless the technological need was so specialized that it required a proprietary product.

With all of these possible operational cutbacks, how can a firm truly measure its success when bringing on a new technology? Mellas says that return on investment can be determined by measuring the impact that a technology has made to increase customer servicing, scalability and revenue, and reduce head count. "The best projects you can put in motion are the ones that touch base on every piece of the puzzle," he says.

The conference themed, "ROI: Improving Performance Through Efficiency" was held at The Marriott Long Wharf Hotel in Boston on Monday and Tuesday.

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