June 2013: Nothing Typical About the Buy Side

The typical buy-side firm: Now there’s a concept that’s sure to polarize opinion and yield more questions than answers. But it is a notion that we tend to talk a lot about, especially when it comes to firms’ technology needs and the way they go about procuring that technology.  However, pretty much anyone who has followed the capital markets for any length of time would agree that when it comes to amassing the elements comprising the typical buy-side firm, the number of exceptions to any proposed rule makes rulemaking in this context a trivial exercise.

And here’s why: The Man Group, for example, one of the largest hedge fund groups globally, is what many would call a typical buy-side firm. The same could be said of Manhattan-based BlackRock, the largest buy-side firm in the industry, with more than $3.5 trillion under management. Man and BlackRock are as different as chalk and cheese. Then there are the large mutual funds in the US market, which also fall under the buy-side umbrella. And let’s not forget the endowment funds and pension plans on both sides of the Atlantic, many of which have fully fledged, in-house asset management operations that can stand toe-to-toe with most specialist investment managers when it comes to their level of money-management expertise and the sophistication of the technology underpinning the business—they’re also buy-side firms. And then there are the smaller, niche players, not only in terms of assets under management and headcount, but also according to their operational scope, and, in some but not all cases, the relative “simplicity” of their investment strategies. All of the above are buy-side firms, and all are very different animals, although one isn’t necessarily any more representative of the buy side than any other.

But it is when we consider buy-side firms’ technology needs and uses that things get really complicated. Consider this: An organization like the Man Group has a CIO—Mike Wright—who is supported by a small army of technologists. Man’s technology needs and consumer behavior are determined to a large degree, but not exclusively, by a mix of drivers, all of them present in one form or another within all buy-side firms: the firm’s business needs; its existing technology stack; the combined experience and expertise of its technologists; its technology budget; the acuteness of the need to get to market as soon as possible with new technologies; and the trade-off between developing technologies yielding a competitive advantage and those that are commoditized and supported by a third-party provider. The complex relationship between these variables is the DNA determining buy-side firms’ individuality, to the extent that attempting to identify a single organization as a representative of whole, is not only impractical—it’s also pointless.