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U.S. Buy Side Focus Shifts to Investment Performance, Says Linedata Study

The trend is driven by the completion of post-crisis regulation deployments by U.S. asset managers while E.U. firms remain focused on implementing new regulations.

If a shift in perceived challenges is any guide, the fallout from the financial crisis may finally be behind the asset management community -- particularly in the United States.

According to a global customer survey by Linedata, the number of respondents citing investment performance as a main challenge jumped to 47 percent, up from 41 percent in the 2013 report.

Consistent with this finding, only 11 percent of respondents cited investor/client confidence as a primary challenge. This is a sharp reduction from last year, when more asset managers cited investor confidence as a primary area of focus. At 11 percent of respondents it was the challenge cited least often of the eight categories surveyed, plummeting from almost a quarter, 23 percent, in last year's survey.

Global Asset Managers Top Business ChallengesGlobal Asset Managers Top Business Challenges

"There seems to be a move toward normalcy," affirmed Matt Gibbs, a product manager for Paris-headquartered Linedata.

The 2014 study is based on a survey of 190 asset managers, hedge funds, fund administrators and other stakeholders in the asset management industry including custodians, prime brokers, consultants and advisory firms. Of those, 48 percent were North American based, 36 percent United Kingdom, 13 percent mainland Europe and 3 percent across the remainder of the globe.

Normalcy in the U.S. Ahead of the EU

The picture grows even clearer when viewing the data by region. For the U.S., 46 percent of respondents cited investment performance as their firm's main challenge while 40 percent of their E.U. counterparts said the same.

Americans are further ahead because the Dodd-Frank Act has been around longer than MiFID II." -- Matt Gibbs, Linedata

On the other hand, 59 percent of E.U. respondents say their firm's primary challenge is responding to regulatory changes while only 37 percent of U.S. respondents are regulation-focused.

This leads Gibb to believe the relative age of post-crisis financial regulations is playing a significant role. "Americans are further ahead with responding to new regulations because the Dodd-Frank Act has been around longer than MiFID II [Markets in Financial Instruments Directive], which is not yet live," he says.

"The actual implementation process of a regulation can look somewhat different than what the original regulation sets out," Gibb adds. "This creates uncertainty."

Where the uncertainty has largely passed, Gibbs says large firms focused on investment performance are approaching technology in two basic ways. "They're either connecting their existing puzzle pieces in a more elegant and streamlined way, or they're moving toward the concept of IBOR [investment book of record]," he asserts.

IBOR's model of a central data repository that communicates with all other systems in real time "is a very fashionable concept at the moment," notes Gibbs. "I think there will be a lot of IT spend around that concept in the next three to five years."

For smaller firms, such as hedge funds and alternative investors, "we're seeing them come back to the technology market, again," says Gives. "In the past, they were satisfied with in-house solutions."

Cost Cutting Going Out Of Style?

In a trend related to the shifting focus toward investment performance there is a corresponding move away from cost cutting as the biggest challenge facing asset managers.

2014 Survey: Global Asset Manager's Top IT Priorities2014 Survey: Global Asset Manager's Top IT Priorities

While the aggregate response remains steady at around one third of asset managers, it drops to only 23 percent of U.S. respondents. In the EU, 41 percent cited cost cutting as a challenge. "Cost cutting is required to fund uncertainty in regulation," Gibbs remarks.

As for other trends identified in the survey, the top current IT priorities remain relatively similar in the aggregate from the 2013 survey. Data management and compliance systems slightly edge out trading/front office, legacy and reporting systems as the five focal points. Notably, risk management fell from being a top three priority in 2013 to sixth, coming in behind the other five technology categories.

With respect to moving business into the cloud, this remains a future consideration. Nearly the same number of respondents said they would consider moving business processes into the cloud in the current survey, 43 percent, as last year's report (45 percent).

Rounding out the survey was the prospect of running a firm's business on mobile apps. Here, standoff remains. The same number of respondents said mobile applications are not on the radar this year, 49 percent, as last year. An almost equal number said yes both years, at 51 percent.

"It seems there are still two camps," Gibbs says. "One group of people wants to have all their information on the fly. The other group are still saying no, not until we can find a way to write images to mobile apps and rather than data." Anne Rawland Gabriel is a technology writer and marketing communications consultant based in the Minneapolis/St. Paul metro area. Among other projects, she's a regular contributor to UBM Tech's Bank Systems & Technology, Insurance & Technology and Wall Street & Technology ... View Full Bio

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Anne R Gabriel
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Anne R Gabriel,
User Rank: Apprentice
2/25/2014 | 3:10:21 PM
re: U.S. Buy Side Focus Shifts to Investment Performance, Says Linedata Study
Agreed, especially with imperative to resist complacency. As risks are ever-evolving, financial services firms are never really "done" implementing risk management strategies.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Apprentice
2/21/2014 | 6:55:54 PM
re: U.S. Buy Side Focus Shifts to Investment Performance, Says Linedata Study
It's not surprising that the importance of risk management has fallen a bit in the survey. It's still important to the enterprise, but 3-4 years of focus and investment in risk mgmt has put banks in a good place. However, banks need to be careful -- they can't get complacent.
Anne R Gabriel
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Anne R Gabriel,
User Rank: Apprentice
2/21/2014 | 3:09:49 PM
re: U.S. Buy Side Focus Shifts to Investment Performance, Says Linedata Study
Linedata's Matt Gibbs responds: "We didn't ask specifics around that point, but it's implied to be position risk and thus in the performance responses."
Anne R Gabriel
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Anne R Gabriel,
User Rank: Apprentice
2/14/2014 | 5:13:16 PM
re: U.S. Buy Side Focus Shifts to Investment Performance, Says Linedata Study
Good question, Paul. I'm seeking an answer and will post it shortly!
Paul Giles
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Paul Giles,
User Rank: Apprentice
2/14/2014 | 10:04:40 AM
re: U.S. Buy Side Focus Shifts to Investment Performance, Says Linedata Study
does monitoring value at risk come under 'trading/volatility' or investment performance or another category?
Anne R Gabriel
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Anne R Gabriel,
User Rank: Apprentice
2/12/2014 | 5:31:20 PM
re: U.S. Buy Side Focus Shifts to Investment Performance, Says Linedata Study
Good points, Ivy. Reviewing prior surveys shows investment performance was 28% three years ago in the 2012 report (late 2011 data), coincidental to Dodd Frank compliance implementations. On cost-cutting, the regional data mirrors regulator deployment - only 23% of US firms name cost cutting as a primary challenge, while it's 41% for EU. Perhaps there are regional differences within the outsourcing data as well.
IvySchmerken
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IvySchmerken,
User Rank: Author
2/12/2014 | 2:21:47 AM
re: U.S. Buy Side Focus Shifts to Investment Performance, Says Linedata Study
Investment performance is usually a top priority for asset managers, but this must have been competing with regulatory demands. Now that Dodd Frank is somewhat under control, or at least not a new regulation, 46% of US firms can focus on investment performance. It's interesting that one-third of all respondents are still prioritizing cost cutting, yet only 15% picked outsourcing (usually associated with cost cutting) as one of their top IT priorities.
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