Fund Operations (FO): What challenges are long-only investment managers facing in 2019?
James Griffin (JG): Traditional Managers want to set themselves up for optimal performance. They want to concentrate on the areas that they control — who they hire, vendors they partner with and strategies they deploy. It was proven in 2018 and years past that the market is unpredictable and highly competitive. 2019 is the year when managers are looking to rebound and separate themselves from the herd. The complexity of the strategies firms are having to deploy to seek alpha requires the Traditional Managers to hire new talent, implement new systems and spend more money.
The challenge is navigating the inevitable increase in obligations from a regulatory perspective. The imminent implementation of the U.S. equivalent of Mifid II is one example. It’s very possible that 2019 will be the year wherein a level set of requirements are communicated to the industry and SS&C Eze is already in the mode that this is happening, so we’ve taken the success we had deploying Mifid II solutions and deployed resources to prepare for what will be required in the U.S. We’ve already been through this with Mifid II in Europe, so we are confident we’ll be able to get our clients ready state-side as well.
In the Traditional space, it’s no mystery that the demand in transparency is at an all-time high. These demands around transparency from investors further complicate the technical setup at these firms. The frequency of reporting and what these clients are asking of these firms, oftentimes on an ad-hoc basis, has required our clients to have processes in place where they can quickly respond to these reporting requirements. SS&C Eze and SS&C as a whole feel very well positioned to help current and future clients.
FO: What are concerns are your investment manager clients expressing at the moment?
JG: It’s been the case that those in the traditional space have for a long time kept the same infrastructure in place without much change in spend for quite some time. As such, these traditional shops increasingly reach out to firms such as SS&C Eze to figure out what else they should be doing. We’ve been in this business for 20 years, and have advised firms of all shapes and sizes in many markets, and we consider it part of our value proposition to be able to educate our clients on best practices.
From an order management point of view, it’s certainly about trade capture and trade order management, but increasingly it becomes a compliance/audit trail and a portfolio modelling pitch. Many platforms used by traditional asset managers are outdated. At the time these systems were implemented, there were only a certain number of vendors around. Nowadays, there’s the opportunity to look at increasing efficiencies with stronger, more flexible and modern technology. We are doing a number of replacements of our competitors, and I think a lot of it has to do with getting products that can be more readily deployed in the cloud and have a nimbler infrastructure.
Additionally, we are constantly adding efficiencies into the order management and trading processes. For instance, we’ve completely integrated our execution management system and our order management system, allowing traders to perform pre-trade compliance without leaving their execution desktop. This gets rid of the necessity to swivel between the EMS and OMS for traders, and ensures that compliance is an organic part of the process. This is especially important for larger institutional managers that often have multiple beneficial ownership limits across portfolios. Being able to prevent trade mistakes ahead of time saves time and money.
In short, what we offer is a way to save money and increase efficiency, so investment managers can focus on generating profit. Those in the traditional space are looking for vendors that can support them not just from a technology perspective, but from an outsourcing services perspective as well. This trend has been good for us now that we’re part of a larger firm. We are able to offer a complement to our software through services, so that’s been a big ask in recent times. Middle- and back-office services and also regulatory reporting services are a further area we are receiving requests around. Every investment manager is looking for ways to slim down their costs. To do this they look to outsource different functions.
As a result, we are well-positioned in the market to accommodate this sort of consolidation.
FO: How are you changing your business to accommodate these needs?
JG: Offering services is a big opportunity to complement the investment process and systems we deploy for the operational process. To complement this with human capital is presents a great growth area for SS&C Eze.
We continue to find that use of Excel is still very prevalent for many in the investment space. Getting people onto more scalable solutions, and off manual processes that Excel typically drives, is another key are of focus for us. A big question we ask when we go into shops is ‘What is it that you do in Excel?’ We ask clients to show us, and what we often find is that the work they’re performing in Excel can natively be brought into a more institutional platform that SS&C Eze can offer.
FO: With technology, there is the obvious question of cost. How can the buy-side manage it most effectively?
JG: Costs are everywhere. From our perspective, we try to add more in value to how we charge. We’re a cost-effective solution as is, and I think that when we standardise how we deploy and upgrade, that also helps save on future costs. If clients are transparent and ask the question of how their vendors can add value, they will find opportunities where they can increase their effectiveness and at the same time drive down their total cost of ownership. SS&C Eze prides itself on being a partner to our clients, and we are a better firm when we learn more about what our clients are facing. We look at the various uncertainties in the current market place as a way to get more closely engaged with our clients day to day. As part of the SS&C family, we have the opportunity to continue to identify ways we can help across all facets of a traditional manager’s business, and the tools to make their businesses truly efficient.