Marc Mallett, vice president of sales and product management at SimCorp North America, takes questions about why the company won Best Buy-Side Operations Solution for its Dimension offering.
Susan Peter, Director of Marketing accepting the award for Best Buy-Side Operations Solution on behalf of SimCorp at the 2018 FTF Awards gala in NYC.
(Disruptions via technology, regulators and market conditions are spurring major changes in operations for many buy-side firms, says Marc Mallett, who serves as vice president for sales and product management for SimCorp North America. On his LinkedIn page, he describes himself as being responsible for the company’s sales, presales and product management. He lists as among his key accomplishments his transformation of SimCorp North America’s go-to-market group “leading to two consecutive years of record software sales (2016 and 2017), 45 percent growth in the number of clients and 60 percent growth in revenue.” He took time out of his busy schedule to answer our questions about SimCorp Dimension winning the Best Buy-Side Operations Solution via the FTF News Technology Innovation Awards for 2018.)
Q: What market trends and industry developments have led to SimCorp Dimension being chosen by voters as Best Buy-Side Operations Solution for 2017?
A: Asset management has faced much disruption in the past decade from technology innovation, demanding regulation and the growth of passive investment.
The resulting fee pressures, combined with a low-margin environment have converged to put the spotlight on spiraling operating costs and a need to improve profitability and compete. So much so, that in a recent buy-side survey aimed at heads of operations, 80 percent stated that consolidating systems is their number one strategy for reducing costs in 2018.
At the root of these challenges and key to achieving a low-cost base is data management.
We are now seeing firms handling larger and more frequent volumes of data than ever before with a greater need for speed, transparency and accuracy to inform their investment decision-making.
The status quo of multiple systems and interfaces, coupled with legacy architectures, which many asset managers are operating on, has inhibited the ability to conquer data management efficiently.
Transformation is necessary and consolidating systems is now front-of-mind for the buy side.
The benefits of a consolidated target operating model are clear. Managing investments on one multi-asset class system, like SimCorp Dimension, reduces costs and operational risk, but also improves the automation and innovation that are crucial in the search for Alpha.
Embracing consolidation has brought SimCorp clients many tangible benefits across the investment lifecycle from an 80 percent reduction in manual processes and a 67 percent increase in assets (with no additional headcount) to 0 to 85 percent automated trade processing, and a reduction in accounting closing time by 50 percent.
Q: How important is automation (straight through processing) in reducing the complexity of buy-side operations?
A: So much of this comes down to simplification and controlling what you can.
There are so many external factors, as discussed earlier, increasing complexity and driving up operations and technology costs that investment managers need to simplify what they can.
When they consolidate systems and reduce the number of interfaces, they simplify the operational environment, enabling automation.
Automation is important, because it increases straight through processing (STP) in workflows that may previously have relied upon numerous applications and manual workarounds.
SimCorp has helped some of its clients increase STP rates significantly, and in turn, reduce overall cost of operations too.
In the case of one large European client, we have helped to increase their fund STP rate from 85 percent to 99 percent.
For our clients that have been able to operate their funds below 10bps [basis points], they cite system consolidation, improving STP rates and having an IBOR [investment book of record] for readily accessible and accurate data, as being among their winning strategies for the compression of operating costs.
Achieving automation also contributes to profitability by giving rise to new business opportunities.
From an organizational perspective, SimCorp clients that have achieved higher degrees of automation throughout the investment lifecycle have also relayed benefits such as morale and satisfaction of their team members.
These firms have been able to redirect team members from performing mundane manual processes to higher value work in areas such as analytics.
Q: Optimal data management has been an elusive goal for decades. What current technologies can potentially help buy-side firms improve data management strategies?
A: Data management is a sought-after goal particularly in a competitive market because data that is managed effectively can help a firm better understand and retain its clients, identify cross-selling opportunities, create new lines of business, and importantly, optimize investment decisions. It is an invaluable weapon for any firm’s war chest, and can’t be overlooked in today’s low-margin environment.
SimCorp has always maintained that a consolidated investment platform that is powered by a single-source IBOR is key in the effective management of data across the investment lifecycle.
The transparency delivered by an IBOR is a considerable asset when it comes to making available relevant information (for investment decision-making), which normally only resides in the middle and back office.
To help firms put data management into practice more easily, SimCorp has combined its IBOR with a robust data warehouse and a managed data service — Datacare — that offers a choice of data models to suit different operating strategies.
By combining these three elements, clients can continue to access data from their chosen vendors but with improved insight and quality and with reduced data costs and maintenance.
Many asset managers working with a tangled web of IT systems underestimate the potential of IBOR technology, often viewing it as an idealistic goal.
In reality, it can be employed in a variety of different infrastructures.
For example, we currently see firms initiate system consolidation projects in the front office as a first step to solving order and execution management challenges. When combined with machine learning to aid STP rates and APIs [application programming interfaces], which allow integration of data into client specific tools, firms can capitalize more easily on their own IP.
Q: Why is it important for vendors to commit to spending on R&D?
A: SimCorp Dimension is used globally by more than 16,000 active daily users and manages over $19 trillion dollars in AuM [assets under management] for half of the world’s Top 100 investment managers.
In order to continue to provide the highest standards of service to those firms working in global financial markets, it is essential that we have a consistent commitment to R&D.
To this endeavor, each year we invest 20 percent of our annual revenue into research and development.
In 2017, this commitment equated to $76 million and is a far higher percentage of revenue than the industry average and higher than even the likes of Google, Microsoft and Amazon.
Q: Why does SimCorp update Dimension’s features and functions twice per year? How does this investment benefit the buy side?
A: Our software releases are a large part of this R&D effort and they ensure innovation remains at the core of our solution.
We currently deliver two releases a year — in February and August — in response to our clients needs as well as changes in the markets such as regulation.
These releases are the result of continuous collaboration with our clients to provide the best solution for their needs.
Recent upgrades and enhancements include new, advanced additions to SimCorp’s front-office modules and several accounting developments to our established accounting book of record (ABOR) to enable investment managers to further automate back-office processes.
These updates also implement global regulations such as MiFID II and local tax, accounting or regulatory reporting.
In order to deliver to our clients a more frequent and seamless delivery of new functionality, SimCorp will be moving to four releases per year in 2019 for a continuous, scaled and agile development process.
Q: What trends excite you and how will they impact the future of SimCorp Dimension?
A: There has been a significant change over asset preferences over the past five years, where previously popular asset classes such as fixed income have fallen out of favor with institutional investors, such as insurers, in part because of the persistent low interest rate environment.
That same circumstance has thrust alternative investments into the limelight. Their long-term and illiquid makeup has shielded their returns from the effects of market shifts. But this asset class presents as much of an operational challenge as it does an Alpha opportunity.
In the aforementioned buy-side survey, North American buy-side participants stated that multi-asset class strategies are one of their top strategic priorities for 2018. Yet 62 percent of these same participants cited alternatives and private debt as the most costly and challenging asset classes to support.
Bridging this gap will be key to making alternatives a successful investment play.
Following the usual status quo of buy-side operations, the industry has to date reacted with point technology solutions that address only parts of the investment process without providing a comprehensive solution for the entire lifecycle.
SimCorp believes those firms that can consolidate alternatives into a multi-asset class investment platform like Dimension together with robust accounting features will find themselves with a competitive advantage over their peers — similar to when firms started to trade globally 30 years ago.
SimCorp has invested in this space significantly via a private debt module launched in 2017. This was followed by the launch of our fully automated Alternatives Investments Manager earlier this year to provide clients with a dedicated front-to-back solution for alternatives like real estate, infrastructure, hedge funds and private equity.
The new solution intends to serve the growing number of limited partners investing in alternatives, with advanced accounting functionality that can tackle the nuances of alternative instruments.
The Alternative Investments Manager also provides a granular analytics dashboard, where users can track performance based on a variety of criteria, and benefit from improved risk management, to make the most informed investment decisions.
Q: Finally, what’s your view on the usage of technologies such as robotics and blockchain by the buy side?
A: We hear a lot about robotics like RPA [robotic process automation], machine learning and blockchain, and I do believe some of these technologies have great potential for the asset management industry, particularly where automation and analytics are concerned.
But without a solid investment platform at the heart of buy-side operations — one that can deliver timely, transparent and accurate data to the front office — the purpose of these technologies is for now, limited.
From our recent buy-side research in both North America and in Europe, we are seeing the principal concerns at this stage being cost and risk reduction, and data and asset class support.
Perfecting these challenges through consolidation will provide the best foundation for the adoption of new technologies that can further a firm’s competitive edge — to thrive and not just survive.
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