Investment managers are becoming more sophisticated in the technology they use and the services they offer. It once was commonly understood that the buy side was three years behind the sell side when it came to technology; investment managers didn't need to innovate because their sell-side counterparties would provide them with the technology and products they needed in exchange for future order flow. That dynamic hasn't changed - but what has changed is the buy side's drive to be more innovative on its own.
Our cover story ("Custom-Built," page 32) discusses the boom in separately managed accounts. Clients have become more demanding and expect individualized services and unique portfolios. If investment managers created unique portfolios for each client, they'd be out of business - no one can keep up with that level of customization and still be profitable.
However, these personalized demands are being met with new technology and a strategy called portfolio manufacturing. Here, an investment manager creates many standardized portfolios - each taking into consideration a segment of the client base that shares investment goals. To service a customer, the investment manager will choose one of the portfolios as the basic model and then customize it to meet the client's specific needs. Rather than create unique models for each client from start to finish, these custom portfolios can be built with "assembly-line efficiency." This creative model is proving to serve investment managers well.
Investment managers also are getting more creative in how they service retirees. Once the last group targeted by financial institutions, retirees are growing in numbers and are more affluent than ever - and they've become a target market. As a result, Fidelity has come up with a unique offering that focuses on these customers - not those planning for retirement, but rather those already in retirement (see article, page 17).
Finally, the buy side's desire to gain more control of trade execution is creating a need for a more sophisticated buy-side trading desk with advanced trading technology. This important new dynamic has led Wall Street & Technology to create a new publication: Advanced Trading. The new magazine, which accompanies your WS&T this month, is being launched as a quarterly targeting that ever-more-sophisticated buy-side trader who needs not only sophisticated technology, but sophisticated information about the marketplace.