STP's First Step

For Colby Simms, director of information-systems technology at Simms Capital Management, the focus is on straight-through processing. "STP - that's everything for me." And he's relying on his portfolio-management system from Indata of San Diego, Calif. to help him achieve his goal.

True STP, he says, means being able to electronically process everything from decision making to orders, executions, matching, affirmations and reconciliations. That means ensuring there is better integration and more automation from the front to back office. As such, the portfolio-management system is central, since it holds the data about the firm's investments.

Simms Capital - a Stamford, Conn. large-cap-growth manager that invests both domestically and globally - manages about $700 million. It started using Indata's portfolio-management system after switching from a service bureau in 1998.

"We were looking specifically for a couple of things. We wanted greater flexibility to trade orders and to use an interface to enter executions," says Simms.

Since then, Simms has added a range of functionality, such as FIX connectivity, and the firm plans to add a customer-relationship-management module.

Simms says, "We're looking to expand a little bit and integrate their CRM functionality into our portfolio-management system. It's something they offer that we currently don't have."

He says that integrating CRM with a portfolio-management system leads to greater efficiency in terms of handling accounts. "Using our current CRM, we can't access the data through the same system. Once we implement Indata's CRM, we'll be able to access portfolio-management data through one, Web-based application."

At a time when financial institutions are looking to get the biggest bang for the tech buck, technology that can help them automate, integrate and manage their systems with fewer people are high on the list.

Steve Camp, director of managed-business systems at Victory SBSF Capital Management in New York, says the portfolio systems are becoming the central data hub in an investment firm.

"Ten years ago, they were a stove pipe, stand-alone piece in your organization that people entered data in and got data out." Today, Camp says, because of STP initiatives, they are a "central core piece of technology" that is driving data structures.

His firm, which manages $4 billion, of which $3 billion is in separately managed accounts, uses Global Investment Manager (GIM) from Integrated Data Systems of Los Angeles.

Camp says, "If you keep your data associated with your money, your data will be clean." Everything works off the portfolio system, he notes. Firms trade and reconcile off of it, so it's a major data hub.

"We used to maintain a separate database for accounting purposes to capture fees and commissions, which required an entire replication of all of our accounts," says Camp. The GIM System helped him incorporate that task into its system, allowing him to "kill off an entire database." It streamlined the process, reduced the chances of human error from data entry and made it a "much more cost-effective process," he says.

Tom Kyle, chief technology officer and chief operating offering of a Stamford, Conn.-based hedge fund - Kyle insisted the firm's name be withheld - says a more cost-effective process is what he got from using Geneva, a portfolio-accounting system from Advent Software of San Francisco.

"Geneva for us has been a phenomenal product. It provided us with payback within two years by reducing back-office staff required to run our accounting," says Kyle. "It lets us scale our business without having to grow our staff significantly. It provided us with a much more resilient and redundant environment for real-time risk and real-time profit and loss (assessment). It gave us single source accounting and position information across the entire firm."

Kyle says it helped automate corporate actions and reduce errors. "Errors went from a high percentage to not quite zero. It cut our corrections to under 10 minutes per error."

Part of the reason for that, he says, is the product's research capability. "It's much more powerful than a relational database."

Denise Valentine, a securities and investment analyst at Celent Communications in Boston, says that when it comes to portfolio management and accounting systems, "What has been really interesting is the evolution that has occurred." Vendors have taken a holistic approach to building their systems, she says.

The systems hitting the market now, says Valentine, provide an opportunity for organizations to streamline their operations and improve customer service.

Valentine identifies a number of trends in the portfolio-management space. She says that vendors are "getting back to the basics, attuning themselves to what is perhaps their defining characteristics: they touch every aspect of the business process in order to deliver a product to the client. As a result, there is a real opportunity for process improvements in cycle time, error reduction and customer experience."

Moreover, she notes the time frame for firms reviewing and changing their portfolio-management systems is rapidly declining. It used to be a six- to 10-year cycle. But that has dropped to three to six years.

Valentine identifies six major trends in the portfolio management space.

1. The first is that Web access has become the norm and investment clients are viewing statements, graphs and historical performance online.

2. Vendors are becoming more global in scope and segmenting their offerings to deliver services to different aspects of the financialworld, such as mutual funds or hedge funds.

3. ASP use is on the rise. Ten of 13 vendors she surveyed provide an ASP solutions and about 33 percent of installs are now done via ASPs, up from 27 percent in 2001.

4. Vendors are plowing their money into upgrading theirproducts or making acquisitions to expand their offerings.

5. Vendors are moving towards providing suites of products and add-on modules geared for the largest to the smallest firms.

6. There's a move to internal and external STP.

On that point Kyle, whose fund manages $650 million, says his firm had internal STP in 1994 and by 1996 it had external STP. The portfolio-accounting system has played an important role in moving STP forward. "It's more responsive. The nightly process used to take on average 3.5 hours; now it takes on average 35-40 minutes. It's completely changed the way in which we operate in terms of staffing and response."

"Counter-parties still make errors. Vendors and sub-custodians still make errors," he notes. "We still have to have a process that can fix all of those errors as well."

Now, says Kyle, "We can provide real-time reports back to the front office that show corrected data. When the back office has to make a correction to a position, we no longer have to wait till the next day to do it."

Reconciliation with custodians is an area where Simms would like to see more automation. "I've always seen that as a huge sticking point, largely because of difficulties in getting custodian statements into an electronic format."

As for the future of portfolio systems, Kyle says that financial institutions are starting to dip their toes back into the spending waters. "My sense is there's a lot more demand for software than there used to be. People are beginning to see they really need to look at how they run their company and need to find software to scale the business," he says.

When it comes to buying a system, Camp says look for an open database and a scalable platform with a user-friendly front end. As well, look to see if the vendor has clients that "mirror the type of business you are involved with," he says.

Kyle adds that, "No matter what you do, do not buy software until you have had it in your shop running your portfolio with your security masters, producing reports that you can live with. That's a non-standard approach and a lot of work, but it's well worth it."