Efficient Infrastructure Linked to Increased Alpha

Overhauling a data platform is not an easy endeavor. In any business the majority of IT spend is just to keep the lights on, and incremental spend year after year. When businesses decide to take the plunge to overhaul or replace a system part by part, their evaluation often consists of the costs of further inaction.

At the forefront of change is regulation that demands a high level of granularity in reporting. Unless a firm has that information it will build a lot of workarounds. It can cost a lot in time and manpower to find information, perhaps using multiple SQL queries, causing reliance on the staff most adept at running them. Worst of all, it erodes trust in the final figures.

IT departments are also frequently confronted with a long list of small but necessary system changes, holding up the firm's ability to grow. As a result, and firms are evaluating their systems on the level of information it can gather, and flexibility to respond to new requirements and enter new investment classes.

Breaking the Cycle

All of this is exacerbated by the fact that big businesses are typically more complex in organization, product type, and how they deliver that back out to clients, and their clients are complex in turn, says invesment management solution SimCorp’s David Kubersky, managing director in North America. "But," he adds, "big or small, you must know what you own, know what it's worth, and know what your risk is."

For example, pre and post trade compliance for a variety of reasons is something organizations are trying to get a better handle on. "If you don't know what you have, how do you know if you can move to a new category or not, or if you should move -- is it allocated, mandated, or on a no buy list? Unless you have a central place where all your positions are it's hard to determine that."

Not only does a data platform overhaul minimize risk, argues Kubersky, organizations leading this change are beginning to see better investment results by responding to business risks faster. "Those who invest in this infrastructure are ahead of the game because their internal access to information has improved."

In the case of SimCorp's client American Century, the firm had complained their systems had prevented them from going into new markets, taking on new clients and trading systems that gave them alpha. With the SimCorp Dimension platform in place American Century sees expansion opportunities in new regions and markets. "It is hard for IT to fund this, but those that do it and build the right business case are getting the funding and able to move forward," says Kubersky.

In a forward look paper SimCorp argues there is a direct link between operational efficiency and improved alpha, It states that control of enterprise data can "yield productivity and profit gains that are 5-6% higher than other companies in a given peer group. In the investment management industry, that edge translates into anywhere between 51-242 basis points (bps) of inherent alpha retained by minimizing implementation shortfalls arising from suboptimal investment operations."

SimCorp has found more budget has been allocated for platforms in 2014, a significant uptick from two years ago. There's a common agreement that something needs to be changed, and there's been consensus across the organization that this is a priority, Kubersky observes. Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio