Pension fund provider PGGM recently decided to entirely rework its information flows and technology infrastructure to establish a straight-through-processing environment. The usual motives for attaining STP, such as preparing for the now-postponed transition to a one-day settlement cycle (re-slated for June 2005) or automating information flows to accommodate increased trading volumes were not the impetus for PGGM's conversion. Rather, the company decided to make investments in its technology to better service clients with more accurate and timely investment information.
"We wanted to get more detailed information about our positions more quickly," says PGGM's Head of Risk Management Wouter Peters.
PGGM runs more than half its equity positions on outside systems using external managers and receives information about those positions daily from its custodian--Citibank--through an electronic link. "The old system we had didn't run here, it ran at the provider of the system, so we weren't able to get enough detailed or reliable information from that system," explains Peters, who declined to name the provider.
In addition, PGGM executives wanted to reduce the risk of re-keying of information which needs to flow between unlinked applications, so they began examining their information flows before hitting the market. Realizing, however, that company executives did not have extensive experience with systems integration and vendor selection, the Dutch pension-fund-management firm headquartered in Zeist hired Netherlands-based Screen Consultants, a company specializing in investment-management technology.
Screen employees did their own examination of PGGM requirements and developed a request for proposal. Four or five respondents were then selected by Screen, including DST, Thomson and FMC. Peters says FMC won the contract because it had "a much better technology infrastructure" than the other finalists, with an "easily accessible" database. Though he declined to discuss cost, he did describe FMC as "competitive."
PGGM has gone live on a number of modules from FMC, including the vendor's trade-order management system (FMCTrade), portfolio-management system (FMCPacer), reconciliation engine (FMCRecon), and connectivity network which links the firm to its trading counter parties (FMCNet). PGGM's market-data needs are provided for by an FMC subsidiary, Securities Valuation Company. Additionally, PGGM is in the process of incorporating two additional FMC modules into its workflow: FMCSylvan for performance measurement and attribution and FMCGenvest, a general-ledger system.
Alasdair Stephens, head of implementation services in FMC's U.K. office, says PGGM was using three different proprietary back-office systems for its equity, fixed-income and real-estate businesses. "We had to convert all that data into our systems," he says. Stephens says FMC is moving towards having all its modules XML compliant to facilitate the flow of information between disparate systems, however, communication between FMC modules is still done through ASCII files, which Stephens calls "a fairly simple, open format that anybody can match."
PGGM also needed information from portfolios not held on Pacer fed into Sylvan for portfolio measurement and attribution. For example, the firm's hedge funds are managed on Trema's Finance KIT system, requiring an interface to carry data between the two. Information from portfolios managed outside the firm reaches PGGM systems by way of Connex middleware from South Africa-based Peregrine. Peters advises gathering together individuals from all segments of a financial-services firm before technology shopping. Leaving out a department can mean selecting a system which does not fully satisfy all the needs a diverse investment-management company can have.
Specifically, he notes the fact that PGGM was hoping to find a solution that could handle some unique Dutch-loan instruments. FMC, he says, is currently customizing Pacer to handle those instruments.
Peters adds, "We will be able to monitor and react to our positions globally much more directly than we were in the past, so it will improve the decision making for our portfolios."