Guest Contributor: David Kubersky, SimCorp North American Managing Director
We have long left behind typewriters, walkmans and VHS tapes, yet millions in assets are still managed on systems that existed before Windows 1.0.
The inherent characteristics of legacy systems act as major detriments to a capital markets firm’s performance. Legacy systems utilize antiquated programming languages, software and/or hardware that typically are no longer supported by the respective vendors. System deficiencies result in heavy use of spreadsheets and other manual processing. A disparate system landscape offers no single investment book of record. Minimal vendor commitment, lengthy intervals between new releases and low R&D spend are all common. There is a lack of instrument coverage, consistency and granularity. The lack of a consolidated overview leads to multiple versions of the truth.
Often these are back-office systems, but the consequences for the entire firm are far-reaching.
Webinar: Derivatives Processing on Legacy Technology: Fear factor or real factor? July 18, 1 PM ET
A major consequence of being on a legacy platform is the inability to calculate, in real-time, what is owned, what it is worth and comprehensive asset exposure. It can take too long to enter new markets, launch new products and onboard clients. It is difficult to obtain accurate reports on the state of your business, and too much time is spent figuring out how to comply with new regulations. Unwanted everyday realities include overly burdensome manual processes and workarounds, trade settlement issues, the inability to accurately forecast cash and collateral, and ultimately, failed projects. Without an automated, up-to-date IT platform, investment firms face numerous risks.
In the MF Global meltdown, failing systems were a major factor in the demise of a reputable firm. Shockingly, many leading financial services firms are still heavily reliant on decades-old legacy systems. SimCorp studies show that 56% of buy-side execs are not confident in the accuracy of their current record-keeping systems. 30% say they can’t calculate exposure in real time and 40% make critical decisions based on poor quality data. And yet another survey found that almost 35% of respondents have no immediate plans to make technology improvements in the back-office. This is a missed opportunity. With uncertain markets and stiff regulatory requirements, firms that evaluate and transform their systems are the ones who will stay ahead of the competition.
State-of-the art technology can make a difference
The time for forward-thinking action is now. Increasingly, more and more research and studies show that legacy technology, in any industry, has potentially destructive capabilities. With the amount of investment knowledge doubling every four years, firms should not be relying on technology that may be decades old.
Taking on a modernized IT system is an exercise in risk mitigation, but also in growth. State-of-the-art technology can deliver accurate reporting to investors, properly manage risk across an enterprise and position a firm for scalability and growth. In today’s IT-driven world, technology can be and is a powerful enabler to drive alpha. Whether it involves adopting an investment book of record, embracing regulatory reform or accepting that portfolio accounting matters, a proactive, forward-thinking approach will well-position buy-side firms for years to come.
To find out more about how to increase investment performance by replacing legacy systems, attend our upcoming webinar Derivatives Processing on Legacy Technology: Fear factor or real factor? on July 18 at 1 PM ET.
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