The cost and scope of vendor selection are still an ongoing pain point for fund operators and operations figures. There were also factors to consider when navigating a saturated vendor environment
The group were speaking in a recent Clear Path Analysis report, written in collaboration with Arcesium, which included several industry leaders in the operations sphere – including representatives from Seilern Asset Management, Northern Trust Asset Management, Federated Hermes, and Rothschild & Co. Asset Management.
Vendor selection process
The participants had diverse views on whether the investment management industry was saturated in a third-party vendor environment, and whether it was a concern what the most important factors for investment firms were when it comes to navigating this.
"The answer would be more that firms need to be able to access an increasing number of data sources and providers.”
Some said they were seeing the complete opposite situation. “I reject the premise of the question and feel the answer would be more that firms need to be able to access an increasing number of data sources and providers,” said Paul Fahey, Senior Vice President, Head of Investment Data Science, Global Strategic Solutions, Northern Trust.
“The question, then, would be how they can do that more efficiently – so they identify data sources that they can convert into information, intelligence, and insights quickly and effectively,” he said.
Others, such as Lorraine Dryland, Chief Information Security Officer, First Sentier Investors, said a deeper relationship with your existing vendors is an impactful way of increasing efficiency and avoiding over-saturation.
“We have learnt to become much closer in our relationships with vendors and use the parts of contracts that we built in at the outset with service level agreements,” said Dryland. “We have been exercising and using the corners of contracts that we haven’t until now and are really seeing the value in this.”
“There are a lot of options and being able to integrate these into what you have to ensure scalability and efficiency is important.”
She added that the relationship should continue as it gives much more visibility and understanding. “As a result, we can make quicker and earlier decisions about whether to move with the vendor or away from them.”
Russell Newman, Chief Operating Officer, Rothschild & Co Asset Management said that from a fund manager's point of view, cost and scope would be the main secondary factors to investigate as well. “With any data solution out there [and] when you are looking at suppliers, there are a lot of options and being able to integrate these into what you have to ensure scalability and efficiency is important.”
Newman’s strategy of balancing cost as a key component has long been an area of contention in the domain.
There are vendors who can always do things for less but having the balance of service and quality versus cost is important. Wajid Khan, Chief Operating Officer at Nemesis Asset Management told Fund Operator in 2021 that chopping and changing vendors was an effective way of doing so, but that it had difficulties when pursued as a policy.
“We switch vendors slightly more often than in previous years in order to save on costs, which is a pattern within business, said Khan. “We are using some smaller start-ups created by some of the very senior managers or providers we know who have left bigger organisations that we can have successful partnerships with.”
Khan’s strategy of chasing the ‘good’ names in the industry is one way of removing the risk with various approaches to combatting over-saturation.
Others focused on areas such as what this brought in terms of benefits around more choice. “Clients want to ensure [the solutions on offer in the market] are flexible and expandable,” said Mahesh Narayan, SVP and Segment Head of Institutional Asset Managers, Arcesium LLC.
“They also want scalability – ensuring that any solution is part of a greater ecosystem, not an island by itself. It is crucial for clients to feel the technology they are using is helping to future-proof any operating model decisions that they are making.
Legacy data systems
Other pressing areas had also affected the market and created issues for good data management including legacy versus new or more bespoke data management systems and whether this helped operationally.
"More and more, we are seeing the replacement of legacy data platforms become the number one priority.”
“If you look at recent surveys in which asset manager operations and tech teams are asked where they are looking to invest, enhancing data management, data platforms, and data solutions consistently rank in the top two or three answers,” said Narayan. “More and more, we are seeing the replacement of legacy data platforms become the number one priority.”
This is because the asset management community has lagged behind some of the other industries in terms of cloud migration. Narayan added.
He said it was clear that front office spending is going down in and that there was now more of a focus on spending in the mid and back office. “Specifically in the area of data management and data platforms.”
But what effect this has, still remains to be seen.
To see more of this interview, and read the report in full, please click here.
Fund Operator - news round-up 28/4/23
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