There Are Changes Ahead for Asset Managers Including Increased Autonomy and a New Skill Requirements
Vendor Evolution
The natural evolution in the vendor market, particularly with the OMS and integrated portfolio management suite vendors, is the addition of functionality/modules based on innovations in the market, regulatory requirements and client need. Independent OMS vendors introduced the trading module, which was acquired or developed by integrated suite vendors to offer a full front-to-back solution. OMS providers, in turn, began enhancing reporting and performance, and some even launched post-trade settlement support in their efforts to expand solution capability. Today, both types of solutions are examining the relative newcomer, EMSs, and through development, acquisition or partnership, the EMS eventually will become mainstream. Already, EMS vendors are expanding product capability to include compliance, workflow management, better reporting and enhanced market-data analysis.
The OMS and integrated portfolio suite vendors also are expanding capability in the analytics front by bringing performance measurement, securities valuation modeling and advanced risk analytics into the trade blotter. They also are enhancing their systems for derivative handling by developing security-specific screens and workflows. Derivatives can require different categorization and display within the traditionally cash-based screens. For example, hedging positions may be grouped separately or shown with their corresponding underlying security.
A wide variety of third-party vendors offer portfolio- and security-specific risk analytics and securities valuation solutions. Examples include Algorithmics, BondEdge, Yieldbook, Wilshire Associates, Barra, RiskMetrics Group, FINCAD, Lombard Risk, Numerix, eFinRisk and Investor Analytics. Specialist providers will remain a part of the vendor landscape, and vendors often maintain interfaces to some of them. However, embedded analytic content will be added to varying degrees by suite and trading providers, particularly those targeting large asset managers and hedge funds.
Algorithm Appeal
Many asset managers regularly use algorithms for analytics, citing lower commissions, greater control over trade executions and anonymity. While broker-dealer-sponsored algorithms are well distributed in multiple types of third-party vendor and broker-sponsored trading technology, the majority of investment managers do not make use of the vast array of algorithms available. This continues to be an education challenge for brokers, which simultaneously are developing the next generation of algorithms in additional asset classes.
However, transaction cost analysis (TCA) products are helping asset managers validate strategies. This will support expansion of product usage as traders become more comfortable with the algorithms in use and begin to experiment. More technologies will appear to help portfolio managers and traders design their own algorithms with easy-to-use client interfaces.
Denise Valentine is a New York-based senior analyst in Celent's securities and investments group. Her research focuses on institutional asset management; hedge funds and the intermediary market; evaluating systems in the front, middle and back office; as well as general industry trends. Before joining Celent, Valentine was a business risk manager at GE Capital Services.
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