Know your business; know your customer. These may be basic business objectives, but they also are the underlying theme of asset management firms' top technology initiatives for 2004 and 2005. There will be a lot of self-examination across the industry and, according to a recent research report by TowerGroup, the introspective mind-set is here for the long haul.
The cost pressures of recent years have eased just enough that many asset management firms will have room for a bit of big-picture thinking about their business technology, whether for meeting regulatory expectations or the needs of their customers. "The [technology] initiatives for these firms are not quick, one-installation type of projects," says Gavin Little-Gill, a senior analyst at TowerGroup and co-author of the report, which is based on interviews with asset managers. "These are much more strategic IT priorities - strategic with respect to using multiple systems, integrating data from multiple systems and changing business processes," he adds. Here's industry perspective on the five areas TowerGroup identified as priorities.
To know your business, clean data is crucial. More firms are realizing that data management is central to what they do, since it's the building block for a host of functions, including measuring risk, integrating systems and delivering information to customers. "All [client and risk] reporting, we consider part of the data-management aspect. Data management is an umbrella for us," says Gudrun Neumann, SVP of information technology at American Century Investments.
In 2002, American Century began to define how it handled outbound data to clients. Because the firm was dealing with multiple channels and spending too much time compiling performance data, it saw a need for a central core data source. To address that need, the company purchased Eagle Pace, a data hub component of the Eagle Suite from Eagle Investment Systems of West Hartford, Conn. Neumann expects implementation of the system to continue through the first half of next year. Then, he says, the firm will tackle management of in-coming data. "[Analytics] are definitely a focus for a lot of firms," she says.
According to TowerGroup, American Century is not alone. TowerGroup finds that top-tier investment management institutions are spending $30 million to $60 million each on data management projects this year as part of multiyear initiatives, including a spate of initiatives to centralize data infrastructures. "When you aggregate that, we're talking hundreds of millions to billions [of dollars] on the activity," says TowerGroup senior analyst Tim Lind, who co-authored the report with Little-Gill.
Risk Management and Reporting
Risk management and reporting is also a focus for firms this year, and it relies heavily on effective data management. "If you try to solve risk management, but you don't have the sufficient data to support it, you can't do it," says Keith Dennelly, chief technology officer at State Street Global Advisors. "The most sophisticated algorithms won't work unless you have the quality data. You need to get the data right first."
While it's an important element, an efficient risk-management and reporting scheme touches so many areas that Dennelly doesn't break it out as a separate budget or strategy priority. "It's part and parcel to everything we do," he says. "I couldn't point to a specific system that does risk management, but we have it built into our systems environment so that [the environment] provides for risk management at different levels, whether that be credit risk or counterparty risk."
Portfolio risk managers used to spend a lot of time ensuring that they had clean data. Now, the expectation is that IT departments can give them cleaner data so managers can focus on the actual portfolio risks.
More firms are building or buying applications to look at risk, such as portfolio-construction tools that look at correlation coefficients or performance-activation tools that feed risk data back to the portfolio managers. That will let firms more effectively predict and evaluate the performance of a portfolio and better evaluate portfolio managers. "The whole way in which risks are taken within a portfolio will be a key attribute to the evaluation of a manager and how well they're doing, not just [the manager's] performance against an index," says Lind.
Business Continuity Planning
Since Sept. 11, 2001, BCP has been a hot topic, and Little-Gill says much of the attention is on developing backup sites. At one San Diego capital management firm, however, the focus has shifted from just disaster recovery planning to enabling a more mobile, better-connected workforce. "We're looking to make better use of remote access because we realize that people's mobility is decreased in the case of a disaster," says Dan Stroot, CTO at Nicholas-Applegate Capital Management (NACM).