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"With an on premise system, upgrades take a considerable amount of time and effort, and generally we upgrade annually – meaning we have to wait a long time for software improvements.
It also means we have to spend valuable resources on non-core activities such as hosting and IT maintenance. With the current cyber environment and frequency of security patching, on critical systems for us this is a manual, out of hours, process that means Production systems are unavailable. We are strategically moving to SaaS for some critical systems, so that not all our key systems are running in the same environment. This makes BCP/DR more layered – and gives us more options, and less likelihood of all systems outage."
Head of Technology, $9bn Asset Manager
"We were running one of the established hosted solutions, and certainly had some challenges. The software was very complex since it had grown over a long time, which made it difficult to onboard new team members and some portfolio managers even retreated back to spreadsheets in the end.
Change management was another challenge, we had to rely on external consultants to perform upgrade projects and implement new functionality. This resulted in a high total cost of ownership and slow delivery of enhancements, which in the end impaired our ability to provide the best return for our investors."
CEO, $6bn Asset Manager
Car analogy: You lease the car and park it in a shared garage. You still pay for the garage, but you’ve got less maintenance to deal with both for the garage and the car. Downside is that you just have one car model for all your needs and it’s difficult/expensive to upgrade/change to another.
Our organisation is required to support some bespoke compliance rules, which we understood were not going to be available ‘out the box’. This was a key consideration in our choice of partner, and we worked closely with Limina and our business users to design appropriate solutions, which are now used on a daily basis, helping to streamline our processes and optimally manage our risk
Business Analyst, $11bn Asset Owner
A closer comparison between custom, off-the-shelf and institutional SaaS
In the list below, we look at on-premises/hosted solutions compared to the first generation of cloud-native solutions (one-size-fits-all SaaS). We also contrast them both with the latest generation of asset management technology: enterprise SaaS. This table is a summary, and we’ll get into the details in subsequent sections of the guide as well as in breakout posts (linked throughout this guide).
Completely custom solution (on-premise or hosted) |
One-size-fits-all SaaS |
Enterprise SaaS |
|
|---|---|---|---|
Your data is isolated |
|
|
|
Customisable - to fit your alpha-generating workflows and other activities adding value to your investors |
through code |
|
through personalisation |
Control of upgrade timing |
|
|
|
Simple and transparent cost |
usually difficult to analyse professional services in particular |
|
|
|
$$$ |
$$ |
$ |
|
Initial cost (implementation, setup etc) |
$$$ |
$$ |
$ |
Upgrade testing included in vendor’s offering |
|
|
|
Fast access to new functionality |
|
|
|
A closer comparison between custom, off-the-shelf and institutional SaaS
In the list below, we look at on-premises/hosted solutions compared to the first generation of cloud-native solutions (one-size-fits-all SaaS). We also contrast them both with the latest generation of asset management technology: enterprise SaaS. This table is a summary, and we’ll get into the details in subsequent sections of the guide as well as in breakout posts (linked throughout this guide).
Completely custom solution (on-premise or hosted) |
|
|---|---|
Your data is isolated |
|
Customisable - to fit your alpha-generating workflows and other activities adding value to your investors |
through code |
Control of upgrade timing |
|
Simple and transparent cost |
usually difficult to analyse professional services in particular |
|
$$$ |
|
Initial cost (implementation, setup etc) |
$$$ |
Upgrade testing included in vendor’s offering |
|
Fast access to new functionality |
|
One-size-fits-all SaaS |
|
|---|---|
Your data is isolated |
|
Customisable - to fit your alpha-generating workflows and other activities adding value to your investors |
|
Control of upgrade timing |
|
Simple and transparent cost |
|
|
$$ |
|
Initial cost (implementation, setup etc) |
$$ |
Upgrade testing included in vendor’s offering |
|
Fast access to new functionality |
|
Enterprise SaaS |
|
|---|---|
Your data is isolated |
|
Customisable - to fit your alpha-generating workflows and other activities adding value to your investors |
through personalisation |
Control of upgrade timing |
|
Simple and transparent cost |
|
|
$ |
|
Initial cost (implementation, setup etc) |
$ |
Upgrade testing included in vendor’s offering |
|
Fast access to new functionality |
|
4. Gaps in functionality and/or asset class coverage
Some cloud-native systems were originally built for simple use cases, such as to service start-up hedge funds. The system was designed, and data models were built, in a hard-coded fashion. Addition of new functionality is now difficult as it requires large changes to the foundation of the system.
Legacy vendors aren’t moving fast either. Reports indicate that upwards of 80% of technology budgets on the buy-side is spent on maintenance of legacy technology. This sadly means only 20% of the budget legacy vendors allocate to R&D goes to new functionality that is valuable for your business!
The way enterprise SaaS tackles these problems is with microservices. If future change to the system is the top priority, this is the optimal system architecture. It takes longer to initially get such an architecture to market, but once live it’s optimally prepared to be adapted to new requirements as fast and stable as possible.
Data trust is a key concern
When surveying asset managers recently, we found that being able to better trust the portfolio data in the system was deemed a very high priority. More than half of respondents even ranked it as extremely important.
The top reasons for data quality lacking in front office and middle office system were identified by respondents as:
Problems 1-3 are directly addressed by an enterprise approach to systems. We’ll discuss some functionality next that relates to overcoming these challenges.
Note: The guide will later also mention how 4 can be overcome, albeit unrelated to enterprise SaaS specifically.
Lack of automatic data checks, i.e. relying on manual data checks such as stale prices, instrument parameters etc.
Import of data from service providers such as custodians, is incomplete and/or unreliable.
Data is manually entered, and humans make mistakes. In other words: lack of automatic sanity checks for data entry.
Lack of integrated workflows, i.e. multiple systems used for investment operations and those systems aren’t in sync data wise.
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Functionality of Institutional Order and Portfolio Management Software
In addition to the non-functional aspects of enterprise SaaS discussed above, there are also a few features offered by an institutional Investment Management System that usually are not present in off-the-shelf cloud solutions:
1. Data import / export application
As briefly introduced above, a configurable import and export engine (or application) is a key component of an enterprise IMS. The key word here is configurable. I.e. it enables a business user (without technical expertise) to:
- Set up connections to new data sources
- Modify existing connections
- Instruct the application how to transform data: filter, sort, aggregate, identify positions/portfolios etc.
- Load the data into the Investment Book of Records / IMS
- Extract data out of the IMS / IBOR using the same tool
2. Configurable data quality controls
Configurable data quality controls continuously monitor the health of your data, based on the instructions you give it. Examples could be controlling for:
- Large price or P&L movements (you define what “large” means for your portfolios and your instruments)
- Instrument parameters, such as ESG rating required to be set on an instrument before it can be traded in your sustainability funds and/or mandates
- File not received as expected from custodian
With an increased confidence in data, you reduce operational risk and can focus on investment returns instead of manual data checks.
3. Approval workflows
4-eye approvals for orders and changes by operations to trades after confirmation are table stakes, supported by most solutions.
An enterprise SaaS takes oversight requirements further to include changes to compliance rules and parameter changes to instruments.
A concrete example is a change in a parameter on an FRN that affects estimated coupons and hence cash ladder. The change could be a manual update or a change from the market data provider. For such a change, you might want to have an approval workflow where there is not only an audit but a 4-eye approval before the parameter change takes effect.
4. Exception-based workflows
Operational load was the 3rd highest priority to decrease when we surveyed asset managers recently. 85% of asset managers said the following are key problems:
- Too much manual work, leading to mistakes and colleagues that don't thrive
- Difficult to scale operation teams efficiently and with quality
Exception-based workflows is an approach to automation, where most of the workflow is automated but leaving the key decision points for humans to act upon. As an example, the IMS can automatically identify a missing ESG parameter when trying to trade an existing instrument in a sustainability fund, and flags this for review, leaving it to humans to resolve them.
The point is that machines are exceptionally good at issue-identification, but humans are much better at issue-resolution. It’s our view that letting a machine completely be responsible for operational processes breaks good governance. However, a machine that provides oversight to empower humans makes the combination even stronger!
Topics not covered in this guide
Firstly, we didn't cover the difference between single- and multi-tenant solutions, which you can read about in a separate article here.
Another important area is end-to-end vs best-of-breed. These two are not mutually exclusive. As former investment managers, we believe that holistic workflows are important to achieve. For example, a portfolio manager shouldn’t have to jump between systems to complete a rebalancing sessions and route orders. With the right IMS at the core of your workflows, certain capabilities could reside in separate systems and still offer a smooth user experience.
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Download a shareable copy of this guide that covers:
- What all buzzwords like cloud-native, enterprise SaaS etc mean
- How we got to the current system landscape within front office and middle office
- What the future holds for investment technology
- The pros and cons with choosing different types of cloud solutions
- Which type of software is the best fit for your firm, and why
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