Portfolio Managers – Wishing for Integration

A majority of asset managers are less than satisfied with the status quo among portfolio management systems and are looking to better integration as an answer. Having technology in place that facilitates a straight-through trade process across functions and asset classes is essential to the core objective of an asset management firm; bad data and processes cannot be a distraction or drag on resources at a time when alpha is at a premium. TABB Group head of fintech research Monica Summerville examines the pain points and asset managers’ wish list.

Straight-through processing (STP) is old news – or is it? When it comes to portfolio management systems (PMS), despite a majority using packaged solutions, two-thirds of asset managers’ portfolio management workflow includes tasks that require some sort of manual intervention – or are simply not supported at all (see exhibit 1, below).

It does not have to be this way. TABB Group’s latest research, which included interviews with senior front-office buy-side executives employing a mix of proprietary and packaged solutions, found a majority of asset managers less than satisfied with the status quo and looking to better integration as an answer.

Exhibit 1: Tasks Not Accomplished or Requiring Manual Intervention in Current System

Source: TABB Group

Investment decisions are the building blocks of active portfolio management. In today’s environment of compressed margins and regulatory pressures (see TABB Group’s report, “US Institutional Equity Trading 2018: Adapting to the New Reality”), having technology in place that facilitates a straight-through trade process across functions and asset classes is essential to the core objective of an asset management firm. Bad data and processes cannot be a distraction or drag on resources at a time when alpha is at a premium.

The portfolio management suite encompasses the critical tasks associated with an investment decision. Comprising portfolio modelling and construction capabilities, trade order and positions management, portfolio and risk analytics, and accounting, the portfolio management system should seamlessly connect players and data across the front, middle and back offices, ensuring that everyone has the consistent and accurate information they need to support a transaction or portfolio. The ultimate platform must provide a real-time, comprehensive view of exposure across asset classes to adhere to client goals and guidelines, as well as a technological architecture that allows for efficient and powerful integration within an existing ecosystem.

The Pain Points

TABB Group research found that the biggest pain point was the need for manual entry, as this has strong impact on the trade flow. Decision and risk modelling is another area where TABB Group found managers and analysts supplementing their processes with external tools such as spreadsheets and vendor solutions, meaning results have to be ported back into the PMS.

There are three principle areas where integration and synchronization are considered valuable but woefully lacking across the buy side: system, data and workflow integration. Not having an integrated platform can result in inefficiencies, errors, and un-reimbursable losses for the firm. However, TABB Group found that 60% of asset managers have an unbridged gap between their PMS and execution systems (see exhibit 2, below)

Exhibit 2: The Current State of Integration Between Portfolio Platform and Execution Systems

Source: TABB Group

Our research also found some firms, particularly smaller-sized asset managers, struggling to incorporate market data into their portfolio management platforms, and almost half of small- and medium-size asset managers do not have a view of real-time trade data in their systems. Overall, three-quarters of firms also suffered from workflow gaps relating to the assimilation of data, which impacts the rate of reconciliation exceptions, manual workarounds, bad reporting and inconsistent pricing and valuations across platforms (see exhibit 3, below).

Exhibit 3: Challenges of Integration Data into the Execution Environment

Source: TABB Group

Can’t Get No (Workflow) Satisfaction

Our research found half of asset management firms have issues with existing workflow integration. While this is more of an issue for smaller firms than large ones, one-third of large and medium firms described their systems integration as having “somewhat” or “little to no integration.”

Unsurprisingly, only one-third of respondents said they were “satisfied” with their end-to-end portfolio management platforms (see exhibit 4, below).

Exhibit 4: Level of Satisfaction with End-to-End Portfolio Management Platform

Source: TABB Group

It seems, as one executive told us, “Everyone has challenges of some sort."

TabbFORUM is an open community that provides a platform for capital markets professionals to share their ideas and thought leadership with their peers. The views and opinions expressed are solely those of the author(s). They do not necessarily reflect the opinions of TABB Group, its analysts, TabbFORUM and its editors, or their employees, affiliates and partners.

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