The increasing demands on investment professionals to process and manage large amounts of data, analyze complex instruments, and produce real-time reports for both internal and external clients has led to a demand for sophisticated investment management software/portfolio management software (PMS). With the multitude of PMS/investment software options available and the industry pressures exerted by straight-through processing (STP) and market saturation, vendors are being forced to further redefine their product niche through comprehensive product functionality, cutting-edge technology, and superior customer relationship management (CRM). One company that has done this is Thomson Financial with its PORTIA portfolio management solution.
A unit of Thomson Financial, Thomson Financial Software Solutions (TFSS) provides a comprehensive suite of software products including the Portfolio Trading and Investment Analysis (PORTIA) system, which it views as the centerpiece of its portfolio management solutions. PORTIA's client base includes some of the largest money managers in the industry. The remaining clients consist of banks, insurance companies, and plan sponsors. PORTIA's revenues come from fees for new licenses, annual maintenance, and professional services. TFSS has been reasonably successful in supplementing its new license revenue by focusing on client retention. This has helped to sustain a steady stream of annual maintenance fees, currently the largest segment of annual revenues.
Industry Direction: STP
Now that investment management software vendors have made it through the dreaded euro conversion and Y2K issues, the next big focus is how to position their software to best accommodate the necessary changes resulting from the STP initiative. Driven by a number of factors including increasing trading volumes, cross-border activity and competition, shorter settlement cycles, and the need to reduce costs and errors, STP has become an undeniable business requirement for software vendors. Even though there is general agreement that STP is the next paradigm for conducting business, different vendors have different definitions of what STP means to the industry and to their business.
The Investment Portfolio Management System's Role in STP
The fundamental goal of any system or interface involved in STP is what not to be-and that is a bottleneck. The role of PMS in STP is to receive information from other processes rather than to drive the process. A PMS system's function is to quickly process large volumes of data, shorten turnaround times, and reduce the amount of manual intervention required. PORTIA's relational database management system (RDBMS), automated batch processing, and import and extract capabilities help satisfy these requirements. The introduction of the Electronic Trade Confirmation (ETC) system by TFSS was an opportunity to facilitate more effective post-trade STP by means of new, globally applicable functionality. Due to its technical design, PORTIA has not required any major changes except for the replacement of the product's Depository Trust Company (DTC) module with an Electronic Trade Confirmation (ETC) system. Volumes are not really the driving factor behind this project, although it is clearly part of it. New functionality and a global offering were the two primary reasons.
The ETC system is an electronic trade confirmation processing platform for all domestic and cross-border trading activity. ETC provides better throughput and more functionality than PORTIA's Depository Trust Company (DTC) module and OASYS Global interface. It can work interface with any entity that can provide an electronic block execution and/or confirm message. The system is designed to work with a PORTIA client's existing communications infrastructure to automate the entire confirmation cycle, from block trade matching to confirm matching and affirmation. It was designed as an object oriented application to make it easy and cost effective to maintain. It has also been designed as a very thin client with the entire heavy match processing occurring at the server level.
Clearly the ETC system will facilitate STP and reduce the chances that PORTIA will become the bottleneck. Thanks to the ETC system enhancement as well as PORTIA's open architecture, the product is well positioned to handle the demands of STP.
Other Challenges and Opportunities in the Investment Management Industry
Along with continued globalization and the mergers and acquisitions that have taken place in the investment industry comes the need for the global distribution of data. Multiple remote offices of an investment management firm must somehow feed a centralized database for consolidated reporting and analysis. This presents many problems such as duplication of effort, reconciliation issues, and time lags, all of which drastically reduce the ability of a company to produce consolidated information in a timely manner.
Traditionally, the problem of global distribution has been resolved by providing downloads and importing the information into a centralized database or providing dial-up access to the firm's centralized database. These methods currently serve as interim solutions, but the time lags encountered make functions like real-time compliance checking both inaccurate and ineffectual. Because of the increased demand for this functionality, TFSS plans to implement a globally distributed PORTIA database to address the technical issues faced when implementing and supporting multiple sites. The time frame for delivery of this enhancement has not yet been determined, but the high-level proposed design restricts writes to a centralized database with reads propagated out to local databases in near real time. In the meantime, PORTIA's competitors, such as Advent and its Geneva product, are already offering global accounting capability.
Vendors of investment management software/portfolio management software are faced with a saturated market. As a result of the mergers and acquisitions that have occurred in the industry, the number of prospects has actually been reduced. The bulk of new business is generated through replacing a competitor's system. In this scenario, product and service strengths as well as response time to market demands are critical to win the prospect's business.
One opportunity can be found in the European market. Based on the effects of a single European currency, Europe can now be viewed more as a single entity rather than several distinct countries. Previously, smaller, niche-focused vendors serviced these distinct countries. While opportunity exists, the challenge is to satisfy the diverse market demands without burdening the core product. In response to this demand, TFSS formed the Complementary Solutions group. This group focuses on projects that do not add global value and so do not get addressed by the core product, but since they are not one-time solutions, the Professional Services group does not handle them. Having this group enables TFSS to reduce the time to market for specific enhancements. Since the resulting changes are not part of the core product, they are not tied to the product release cycle and can be delivered as soon as possible to the client. In this way, TFSS is able to effectively balance maintenance of the core product with the opportunistic demands of the market.
PORTIA's Strengths and Challenges
Differentiating itself among its competitors is a daunting task for any vendor. TFSS has been able to do this with PORTIA's many strengths, which include its reputation, multicurrency sophistication, and its reporting capabilities.
With its global presence in 40 countries and its client base of reputable firms, PORTIA maintains strong brand recognition. PORTIA's multicurrency capabilities include the storage of unlimited number of currencies and exchange rates, tracking of portfolio, security, cash balance, and reference currency as well as support for forward processing with specialized transactions. In addition, PORTIA is completely EMU compliant, providing historical tracking of pre-EMU transactions, portfolio currency, and triangulation. Another strength of the product is PORTIA's integrated report writer, which slices and dices data and easily customizes both reports and calculations; furthermore, it is complemented by the ability to sort, filter, and report on any data item in the database.
Despite these strengths, some prospects find PORTIA's technology too limiting because it does not support Oracle databases. Businesses that are set up using Oracle are often unwilling or prohibited by costs to change both their PMS and their current database package simultaneously.
Other competitive weaknesses for the product are the lack of an embedded investment ledger and the inability to handle subaccounting, specifically accounts managed by multiple managers.
While market opinion has been divided with regard to the quality of the PORTIA user interface, some prospects have commented that it is not as intuitive as that of the competition, and feedback indicated that of the number of layers required to reach specific data is too cumbersome. Finally, for the many prospects, higher pricing continues to be a reason cited for the loss of prospects. Product pricing is not the sole contributing factor to this issue. The total cost of the system, including the high cost of customized work quoted by Professional Services, has put the total acquisition cost out of reach.
PORTIA will continue as a major player with a growing share of the investment management software/portfolio management software market. As TFSS further enhances PORTIA to accommodate the global markets, it will see opportunities especially in the markets outside the US.
PMS/investment management software systems that are part of an integrated product suite will continue to be more viable as competitors than as standalone systems. Although an argument can be made for integrating the "best-of-breed" solutions, clients would rather deal with a single vendor that can provide a front-office to back-office solution and thus avoid having to build and maintain product interfaces.
Web access will become mandatory for investment management software/portfolio management software. Vendors that cannot provide access to critical information via the Web will no longer be able to compete in this market. Vendors must be aware that they need to focus not only on the requirements of their clients but-even more importantly-on the requirements of their clients' clients. Lack of Web access will be perceived as antiquated technology, and clients will not be able to retain their clients without being able to convince them they are being serviced by the most efficient technology.
Lastly, a vendor must provide both a quality product and superior customer relationship management to compete in this marketplace. As both the technology and the system functionality become more sophisticated and complex, so does the implementation process. This represents an opportunity for vendors to differentiate themselves in the post-sale process, hopefully leading to more referral business for the vendor.