Jeff Willems discusses many points that match what we hear from our clients and prospects, complete and reliable information will help exceed clients’ expectation and win business.  Accurate reporting has always been essential but it is becoming increasingly important as the regulatory environment heats up and there is a continued demand for transparency from regulators and clients alike. 

What stood out to me in this post was the importance he put on “data governance”.  While quality, clear and easy to read reporting is a key requirement, the accuracy of the reporting is equally if not more important.  Presenting error free data the first time provides a client the assurance that the information used for decision making is based on the cleanest data.  This kind of precision is only possible with the appropriate data governance systems in place.

At PORTIA, we think the data governance is a significant aspect to client and management reporting.  The newest version of PORTIA eReports, our client-presentation reporting tool, includes a robust automated workflow module that allows each organization to integrate the proper checks and balances into all their reporting processes;  ensuring accurate data, appropriate review and consistent monitoring.   While this level of control is vital to client reporting, there is concern that this extra scrutiny and process will add time to delivery.  I would argue that by automating and monitoring the process, businesses could actually increase the timeliness of delivery.  By building SLA’s into the process and monitoring the workflow, bottlenecks can be quickly identified and resolved in a timely fashion.

As clients are getting more sophisticated and demanding, client reporting has become a key requirement and can be an important differentiator in the highly competitive asset management market.  You need the right tools and processes in place to meet and exceed the expectations of your clients and win new customers.

Are your clients demanding more from your client reports?  Do the reporting tools you use help you provide for this? 

 - Damon Schrotberger,  Senior Sales Consultant

There are a ton of insights in the report, but there are two key points that immediately resonated with me.  First, the report focuses heavily on the attractiveness of emerging markets, particularly in Asia, the Middle East and Africa.  According to the report, AUM in Asia has been growing at 7% annually and this is predicted to continue.  The report asserts that asset management in these regions remains a “local business” and the firms that will be successful with offering “regionally tailored product portfolios.” 

Second, the report speculates on what asset management business models will perform well in the coming years.  Like other thought leaders, Roland Berger believes outsourcing operations will become more common, and that firms will push to develop scale.  At PORTIA, we’ve observed both of these trends, with the latter evidenced by the high volume of M&A activity among our clients and prospects.  But more interesting is the prediction that asset managers will increasingly specialize, especially for those firms that cannot compete on scale.

Of course, the firms in emerging markets with regionally tailored products are the most likely to grow through specialization.  PORTIA serves these firms particularly well, because we provide the broadest asset class coverage of any middle-to-back office solution.  And our multi-currency capabilities are second to none.  It’s no surprise that the world’s largest and most global asset managers choose PORTIA to manage their operations, and that PORTIA has been doing business in the Middle East and Asia for decades. 

Do you think specialization – both in size and scope – is the business model that will drive growth for asset management firms in Asia and other emerging markets?

 -Techee Cheung,  Business Development Director – Asia

PORTIA is pleased to announce that it has been nominated for the “Best Performance Measurement Solution” award by FTF News, as part of their 2012 FTF News Technology Innovation Awards program. 

We encourage you to visit this link to cast your vote for PORTIA and your other favorite financial technology vendors.  Voting for the FTF News Technology Innovation Awards 2012 closes on February 29^th.  Note that the site requires you to register to vote – it’s free to do so and you’ll get access to quality, free content on the financial technology industry.  Also, don’t forget to vote for our partners at Electra Information Systems, who were nominated for the “Best Enterprise Reconciliation Solution.” 

Thanks as always for your continued support.

Though outsourcing over the past decade has become an integral part of many asset management firms’ strategies to control costs, implement regulatory and technology changes and manage continuing pressures on margins, many of the contracts and partnerships in place have failed to live up to expectations. The E&Y article suggests that as the market has matured, asset managers are finding that their current arrangements are not bringing them the cost savings and efficiencies originally promised.  As those contracts are coming up for renewal, asset management organizations are scrutinizing what they are getting from their arrangements and are putting more pressure on vendors to provide the services and service models asset managers need, and the vendors are complying. As service providers are expanding and changing their models, asset managers are starting to rethink their outsourcing strategies but, even with these new conditions, there is still caution about inherent risk in transitioning vendors.  

Service providers are reducing this risk by providing more migration choices.   Instead of the traditional “lift-out” scenarios, vendors are starting to offer more stand-alone options and services especially in the middle-office functions. By offering services in a “component” model, asset managers can move smaller pieces of their operations, helping to smooth the transition.   

PORTIA Outsourcing Services has always focused on the ability to provide “component outsourcing”, allowing our clients to choose what pieces of their business make most sense for them to outsource.  Our clients can start with areas such as performance measurement and/or reconciliation services, letting them transition middle-office functions without disrupting their entire operations.   We also provide customized service level agreements, allowing our clients to structure how our services work with their organization to reach their organizational goals and helping to reduce risk.

As service providers broaden their offerings there is opportunity for asset managers to take advantage of competing vendors and more favorable terms, but to do this asset managers need to be prepared.   The E&Y paper states that preparation by asset managers can help to reduce risk and shrink the barriers to transitioning.  To ease the process E&Y suggests that asset managers:                  

• Monitor changing requirements of the business and keep the details of SLAs under constant review – to be able to articulate the service level you are expecting
• Understand key differentiators among service providers up front – to accelerate the decision-making process and reduce overall cost
• Be prepared to bundle middle-office functions with other outsourcing mandates – to encourage providers to offer more favorable terms

Finally, asset managers need to be confident that their vendor has a track record of success offering outsourcing solutions, a robust infrastructure and underlying products that are powerful and versatile.  Despite shrinking barriers, it is critical that outsourcing vendors can scale with growth in their clients’ businesses to ensure that a firm’s outsourcing vendor can meet their long-term needs.

How do you see barriers shrinking in the financial services outsourcing industry?  What are the key rules to transitioning between outsourcing vendors?

If you would like to learn more about outsourcing solutions and how to manager vendors to mitigate risk, we invite you to join us at the Knowledge Congress webinar  “Mitigating Outsourcing Risks in Banking and Finance”  on March 1st.  The attendance is free of charge courtesy of PORTIA.  Click here to learn more and register.

 -Daniel Schlossberg, Director of PORTIA Outsourcing Services

The survey highlights that more than 75% of respondents will be funding the cloud at a variety of levels.  However, of those investing in the cloud, the majority are funding it at “low” or “medium” levels of spend.  Also, the majority of these investments are for disaster recovery, business continuity, email support, mobile computing and other basic IT services.

One of the survey takeaways is that cloud computing has not gained much traction in the middle-to-back office.  For example, the survey indicated that few people are investing in cloud for operational functions such as corporate actions (7%), reconciliation (4.9%) and settlement (4.1%).  The key concern preventing adoption is security and privacy, which was cited by nearly half of the survey respondents.

While the term cloud comes up often in our discussions with clients and prospects, the survey results match our experience in the marketplace.  The FTF survey suggests that private clouds are preferred for deployment, along with software as a service (SaaS) offerings – only 7.8% of survey respondents are using public clouds (up from 5% in 2011).  There is also anecdotal evidence suggesting that much of the investments in cloud are designed to reduce hardware costs more than anything else.

This intuitively makes sense to us, because while large asset managers are interested in efficiencies, they stand to lose the most if they rely on a public cloud that fails or is subject to security issues.  This is why PORTIA offers a comprehensive set of solutions that can installed, hosted or outsourced – consistent with the needs of the asset management community.

What trends are you seeing in cloud adoption in the middle-to-back office? 

-Matthew Bellias, Director of Strategy and Marketing

Fresh into 2012, we’ve heard many predictions about how the region will perform this year.  One of the most common predictions is that Islamic banks and funds will start to consolidate, in part to take advantage of economies of scale and to extend their reach.  We believe this is good for the industry, as it should lead to greater stability and ultimately increased confidence and funds.  Because most Islamic finance organizations are small, there are concerns that even the smallest failure or instability by a handful of firms could cause a run on assets or contagion – and consolidation could prevent this.  Similarly, consolidation is a sensible way to grow for smaller banks, as few institutions in the region have the capital required to establish a newly license megabank that can grow organically. 

Here are few recent developments that indicate the environment in the region is healthy and ready for consolidation:

• The Islamic Financial Services Board, an international standard-setting organization that promotes and enhances the soundness and stability of the Islamic financial services industry, recently announced new principles for liquidity risk management and stress testing (more details here)
• Thomson Reuters launched the world’s first Islamic finance benchmark rate (see press release)
• Emirates NBD Bank announced in October 2011 that it will take over Dubai Bank at the request of the government (read news story here)
• Bahrain’s central bank pushes for five of its Islamic banks to merge in order to improve their capital bases (see details here)

There is also some evidence that Southeast Asian Islamic finance institutions are increasing cooperation with GCC institutions, and that consolidation may occur across regions.  For example, Bank Negara Malaysia is processing three applications for megabank licenses in the country, and sources indicate that all of these investors are from the GCC.  Similarly, Malaysian Islamic finance firms could serve as a good source of capital for GCC firms.

We believe that consolidation could be a key driver of growth for asset managers in the region.  It is also critical for asset managers to continue to penetrate existing markets, as assets under management remain small relative to banking deposits.  For example, in the U.S., assets under management have historically been larger than bank deposits, whereas in the GCC assets under management are a fraction of bank deposits.  Consolidation might be the catalyst needed to shorten the industry’s development curve and provide investors with the confidence needed to shift assets to asset managers.

Are you seeing signs on consolidation in Islamic finance markets?  What are your predictions for the industry in 2012?

- Matt Bellias, Director of Strategy and Marketing

As the various panelists discussed the different aspects of regulations and how they will affect business practices, one thing was certain – nobody is certain what specific changes need to happen and when. On this subject, one of the most interesting panels was Outsourcing & Regulatory Compliance: A Match Made in Heaven?, where the role of outsourcing in complying with regulations was debated. As I listened to both sides, it became obvious that outsourcing can and should be an integral part of  a company’s regulatory strategy and needs to be considered as any asset management firm maps out their short and long-term plans. 

As we have discussed before in blogs (See “Outsourcing – It’s Not Just for Cost Reduction Anymore), the thinking about outsourcing has evolved beyond a “cost reduction strategy”.  Outsourcing the appropriate functions in the middle-to-back office not only allows firms to reallocate resources and potentially reduce cost, but it also makes companies more agile, competitive and compliant.  When thinking about regulatory change, there will be many aspects of your business that will need to change and adapt in order to comply.  By outsourcing parts of your operation, such as non-differentiated parts of the middle-to-back office, you can focus on the components of the regulations that need tighter in-house control and oversight.

To help firms address the changing regulatory environment, PORTIA Outsourcing Services is staffed with a team of product and industry experts that are constantly reviewing regulatory changes and amendments to ensure our underlying system and processes are compliant with the appropriate regulations.  Also our Outsourcing Services team maintains SSAE16 (formerly SAS70 Type II) audit of its operational and technical controls. SSAE16 is an auditing standard developed by the American Institute of Certified Public Accountants, which sets guidelines for auditors to use in order to fairly and objectively assess the internal controls of service organizations.  This certification ensures our services are continually monitored and regulated.

Underlying our Outsourcing Services are flexible software solutions that help clients adapt to and address regulations as they are defined.  For example, using user defined security master file and transaction file, the system is ready to  accommodate unique counterparty identifiers to adhere to LEI rules, as they are identified.  In addition, our advanced reporting capabilities are customizable to provide transparency for Dodd-Frank and other regulations, and our solutions can even handle the potential break-up / redenomination of the Euro (see upcoming blog for more details on this).

As your organization is winding through the myriad of regulations and determining how to implement and comply with all the changes, you should consider whether outsourcing portions of these functions will help you adhere to policies in the most efficient manner.   Where do you think outsourcing will best lend itself in the aggressive regulatory environment we are now living in?

We invite you to learn more about PORTIA Outsourcing Services and outsourcing best practices at the Mitigating Outsourcing Risks in Banking and Finance: How to Manage Vendors Webinar sponsored by The Knowledge Congress.  The webinar will be held on March 1^st 12-2:00pm EST.  Click here for further information and to register (with a discounted registration fee courtesy of PORTIA Outsourcing Services).

 - Dan Schlossberg, Director of  PORTIA Outsourcing Services

 In the early 2000s, everyone wanted a STP front-to-back office operation.  By the end of the decade, the buzzwords were about outsourcing middle-and-back office operations (a mix of man and machine).  So now the question everyone seems to be asking is, “what more can technology deliver to us?”

 A few days ago I was reading a fascinating article in the Wall Street Journal on “big data.” It spoke about how a handful of cutting-edge companies were helping firms comb through terabytes and pentabytes of data by applying intelligent algorithms to aggregate and identify critical insights. As I read through the article I saw how, if harnessed properly, application of intelligent algorithms could be the next big technology trend for asset management firms.

 When looking at large asset managers in the Middle East, most of the back-office operations systems have been in place for a good decade (and often much longer as you look globally).  Within these operations, every year several thousand transactions are entered and stored in back-office databases.  This information is then combined with a few thousand disjointed demographic information points from wealth management / CRM systems. And then, on top of that add historical prices, exchange rates, research notes, etc. aggregated from a multitude of sources.  You quickly end up with a system with vast quantities of data – but what good is that if you can’t harness it into useful information. I continued reading the WSJ article and did some additional research, to learn about these algorithms and how they apply to our industry.

There are several types of algorithms which are used by data analytics firms that lend themselves to asset management. First, anomaly detection algorithms are, in simple terms, a string which could be used by companies to identify whether an investment transaction is in or out of pattern, ex: does it match typical portfolio manager/trader behaviour, or not? Classification algorithms may be used to answer the question of whether this out-of-pattern activity is fraudulent or not. 

 Looking at it simply, you can see applicability to the asset management industry. From avoiding an “Adobili scandal” (UBS rogue trader) to analyzing your past data to helping understand why loss-making deals were done, these algorithms help firms learn from mistakes to avoid them in the future. Now imagine if you could insert such an algorithm into your pre-/post-trade analyses and have your middle-office comb through fewer transactions, thereby reducing your workload in the middle-office compliance function!

Then there are clustering algorithms which could be used by asset management firms to better understand client behaviour by utilizing the seemingly disjointed demographic information stored in databases. For example, what other people is this fund investor of yours most like? You could mix a clustering algorithm with a recommendation algorithm (k+nearest neighbor algo) and answer critical questions such as “what fund or ETF would this customer be most likely to invest in?”

One of the fundamental building blocks to utilizing algorithms to analyze your data in order to make better business decisions is a strong back-office with a single book of records. A single book of records provided by a product like PORTIA – with the flexibility to import and export all required data – ensures that these algorithmic systems can be easily put into place when the time is right, to give you more robust decision-making and support tools to deliver more value to your end users.

Given the power of the systems that utilize these algorithms, it is easy to see why this would be the next big leap in data and technology for asset managers. The systems are already there, being cleverly used by firms in the retail FMCG industry, credit card fraud management industry, automotive industry, etc. It is only a matter of intelligently adapting these technologies to suit our industry.

 I truly believe this could be the next frontier in the buy-side…to paraphrase from Star Trek “to explore strange new worlds (unstructured Data), to seek out new (alpha) and new (client needs), to boldly go where no man has gone before”.

- Anup Namboodiri, Sales Executive, EMEA

The FTF article does an excellent job of explaining the trends they see.  So rather than rehash the content, we wanted to reflect on how these trends apply to PORTIA’s specific space, as some resonate more than others.  Below is our commentary, with links provided to blogs we’ve written in 2011 on these topics should you want to read more.

Industry Trends

In mid-2011, we saw a lot of evidence suggesting that the asset management industry was recovering well from the economic downturn.  For example, this year we posted blogs about opportunity in the Nordics, Middle East and Africa.   While emerging markets appear to be faring better than developed markets, we agree with FTF that everyone is worried about a European debt crisis and slower than expected recoveries in major markets such as the U.S. 

Nevertheless, we are seeing asset managers perform well on a fundamental level.  And one trend that has not slowed is the move towards outsourcing.  We’ve blogged at length about how outsourcing provides more benefits than just cost savings.  We believe that outsourcing could grow ever faster due to global instability.  That is, by using SLAs to shift operational risk to vendors, by having vendors bring world-class capabilities to bear and by shifting to a variable cost structure, outsourcing could be an operating model that provides more flexibility should we see tumult in financial markets.  

Regulatory Trends

FTF asserts that technology spending for the middle-to-back office will increase, in part due to OTC reforms, and we strongly agree.  But in our opinion, OTC is not the only driving factor.  For operations staff, proper data management, performance attribution and ultimately reporting are critical to meeting the information needs of all regulators.  Dodd-Frank, Solvency II, Basel III, UCITS IV, etc. – all of these will have some impact on operational requirements, and for most the impact is still unknown.  So we’d argue that while OTC regulation is imminent relative to other changes, firms should think holistically about how to budget to ensure their operations are flexible enough to meet all future regulatory needs, including but not limited to OTC reform.  Doing this will reduce total cost of ownership. 

We also agree with FTF that the move towards Legal Entity Identifiers (LEIs) will be the first in a series of moves towards industry standardization that is designed to provide stability unlike in the 2009-10 market downturn.  Corporate actions standardization will also need to be addressed, but this is unlikely for 2012.  In the meantime, corporate actions processing will be handled by middle-to-back office systems such as PORTIA, or manually for those not taking advantage of the automation provided by IT vendors.

Technology Trends

Over the past few years, there has been a lot of chatter about the technology topics addressed in the FTF article.  This year, PORTIA has blogged repeatedly about data management, cloud computing, scalability and more.  Cloud computing was a hot topic with clients and prospects in 2011, and we expect this to become even more prevalent in 2012.  Because PORTIA can be deployed flexibly – as an installed, hosted or fully outsourced solution – we can leverage private cloud capabilities. 

However, we have not seen large asset managers move to public clouds.  Given the tight regulatory nature of our industry, the size of most asset managers and the sensitivity around data, we expect private cloud computing to remain the focus of technology discussions in 2012.  Similarly, we have not explicitly blogged about mobile technologies – in part because our clients and partners are not using mobile in the middle-to-back office yet.  However, we agree with FTF that there is a convergence of technology in the middle-to-back office, and we are fortunate that PORTIA is flexible enough to address a shift to mobile should it occur.

We’d like to wish our blog readers a prosperous 2012, and we look forward to continuing to engage with you online throughout the year.  In the meantime, we welcome your comments on the trends above – what are you observing and what is pressing for your firm/clients in 2012?

- Matt Bellias, Director of Strategy and Marketing

 Below are a few of the key challenges cited by multiple interviewees:

• Achieving scale in performance management and handling existing workloads is a challenge for most organizations, although staffing of these functions varies greatly across organizations, irrespective of an organization’s size (as measured by AUM)
• Performance reporting capabilities need to be more customized, as clients are becoming more knowledgeable and are demanding more granularity in reports
• Some organization are experiencing issues with performance data quality and integrity, partially driven by a lack of interfaces and integration across multiple middle-to-back office systems

In order to address these points, we believe performance solutions should be not only scalable, but also automated so that organizations can focus their teams on higher value activities.  Reporting presents a slightly different challenge, insofar as any solution must provide analytic rigor, be easily customized and provide reporting through automated workflows with a level of quality that will improve how you engage with demanding institutional investors.  Most vendors in this space can provide GIPS-based analytics, but few can do so flexibly and efficiently with presentation-quality outputs. 

At PORTIA, we provide solutions for both performance management and reporting that meet the above criteria and are fully integrated with the rest of our middle-to-back office capabilities.  Our solutions are based on an open architecture that allows for easy integration with other systems, to ensure that data is managed efficiently and carefully.  And as you’d expect from PORTIA, our systems are highly scalable and reliable, which is why the world’s largest asset managers rely on PORTIA to support their middle-to-back office operations.

The Aite Group report goes on to address how firms manage performance.  As we blogged about in March 2011, the report affirms that firms continue to maintain centralized performance teams as part of their operations in order to meet the ever-increasing interest from investors who continue to scrutinize performance.  To learn more about the performance landscape, including how firms manage performance from an organizational perspective, we recommend you read the full Aite Group report.

Are you observing the same challenges with performance management?  How is your organization managing performance?

 -Matt Bellias, Director of Strategy and Marketing