March 2014: Breaking the Habit

There is a single tie that binds large numbers of capital markets firms, irrespective of their location, the nature of their business, their assets under management, and their investment strategies: Many have become habitual users of Microsoft Excel, which, since it superseded Multiplan as the business-focused calculation engine of choice back in the late 1980s, has permeated every facet of the financial services industry. But as Anthony Malakian argues in his feature this month, it’s time to break this habit.

Snuffing out our individual vices is anything but trivial, but when compared to many capital markets firms and the extent to which they have become reliant on Microsoft’s wonder app, our personal tribulations pale into insignificant. After all, how does one even begin to contemplate a lobotomy-type procedure, where removing large parts of the firm’s brain is at best likely to affect the normal functioning of its entire body, or worse, kill it altogether? It’s a conundrum that many firms face as pressure from institutional investors and regulators demand industry best practices from a technology standpoint. For buy-side firms so reliant on the life-blood of hugely lucrative institutional mandates, the proposition is a stark one: adapt or die. Granted, software licenses and implementations are expensive, sometimes prohibitively so. But in this day and age of variable pricing structures and cloud-based software, there really isn’t any excuse for possessing sub-par technology, especially if you’re managing someone else’s money. If financial services firms cannot find an appropriate technology partner and the requisite applications to automate and systematize their processes, they simply aren’t looking hard enough.  

Breaking habits involves pain and discomfort, but as the saying goes, long-term gain is worth short-term pain. From a buy-side perspective, institutional capital makes the world go round, and, if you’re an investment shop with institutional aspirations, you’ll need something more substantial than a performance record featuring a five-year winning streak. Trustees, despite how open-minded they might be, will not make allocations to a bunch of spreadsheet jockeys, irrespective of their performance. They just won’t. Period.

On a lighter note, US readers will be delighted to learn that they’re not alone in their Excel plight: According to the European Spreadsheet Risks Interest Group, the Securities and Exchange Commission (SEC) has its own Excel affliction. In a report published on the Group’s website on Nov. 16, 2011 under the “Horror Stories” tab, the SEC was named and shamed. “Many of the Agency’s financial reporting processes are still manual in nature and reliant on spreadsheets and databases to both initiate transactions and perform key control functions,” states the report. However, next time the SEC comes knocking, it’s probably not a good idea to cite this example of its technology frailties.