In 2015, Hanging with the Big Boys

A flurry of implementations suggest an active year

Tim Bourgaize Murray, Waters deputy editor, buy side

A couple of weeks into 2015, and the most notable news is a steady drip of big shops taking the plunge with new externally-provided technology. Tim explains why that is no coincidence.

As the calendar turns, almost everyone resolves to make big sweeping changes in their personal lives, and so too do financial services firms aim to cut out inefficiencies or optimize their operations.

Of course, many of us tend to forget about those resolutions almost as quickly as they were made (guilty), but a few of the more persistent among us are able to maintain their momentum ... at least through to Martin Luther King Day.

The smart ones though, set goals that can actually be achieved by then. Finishing things they've already been working on, in other words.

To that point, it may be a complete coincidence—the sample size, after all, is really small—but one surprising trend so far is the number of implementations that major managers, funds, and administrators have completed and, of course, publicized in 2015's early days.

To wit, Man Group and Amundi taking Thomson Reuters' Accelus Org ID KYC service; Eaton Vance using SimCorp's Coric; OppenheimerFunds bringing Milestone on board; and SEI selecting RiskFirst's analytics for its UK fiduciary management business.

Critical Functions
Just to put that in perspective: Man has $73.3 billion under management. Amundi has right around $1 trillion. Both are the largest of their kind in Europe. Oppenheimer has about $232 billion. Eaton Vance, $296 billion or so. And SEI manages $249 and administers $363 billion (though yes, its UK-based operation is smaller).

Add those numbers up, and a lot of money is now associated with third-party technology and services.

That's only the half of it. though. The other is the importance of just about all the functions involved: KYC, which in the current environment is something firms simply can't afford to screw up. Ditto for Eaton Vance with Coric and client reporting. Meanwhile, OppenheimerFunds is pulling together and verifying net asset value (NAV) calculations, while SEI is using RiskFirst to back pooled fund structures—both of which rely heavily on underlying data being correct.

No, none of these things is an order management system or performance and attribution platform—but running a buy-side shop without an enterprise-grade solution for any of them would be utter folly.

So, are we seeing the early indications of a larger trend? Well, yes and no. No, because there isn't an investment manager out there who doesn't use external vendors for something (even if they don't want the press or competitors knowing about it).

Frankly, there are a good handful of providers now who are incredibly good at what they do, including those mentioned already. Likewise, there are a fair number of tasks both new and old that buy sides must do now, but have zero interest in doing themselves. It's not an incredibly tricky thing to figure out.

But the thing is, each of those categories has thickened tremendously—the idea of a managed KYC service is especially eye-opening. They should continue to do so throughout the year, enough indeed that even some of the biggest names in the industry are becoming more comfortable with the world knowing about it.

Just which functions are ripe for the picking next? A trail of acquisitions and investments can only tell that story, and in a world one more year removed from 2008, let's hope it does. But for now, we should be impressed by this early litany of news.

If nothing else, it confirms what we already knew: 2014 was a pretty productive year in its own right. Maybe vendors aren't so scary after all.


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