(September 12, 2013) — Investment managers are risking their corporate viability and trillions of dollars by continuing to use outdated and obscure technological system, according to a survey and report by SimCorp StrategyLab.
The research firm found that 25% of 500 global investment managers interviewed still operated on ‘legacy systems’—outdated IT infrastructures that struggle with automating and adapting to real-time business transactions.
The report stated these old-fashioned systems are no longer sufficient post-2008.
Without an adequate automation process, managers manually handle data, which could often lead to spreadsheet errors similar to that of JP Morgan in the ‘London Whale’ incident in 2012.
Ultimately, the report argued, the cost of maintaining and enhancing the old systems will be greater than that to replace them.
And because the legacy systems were not constructed to handle complex financial instruments, they fail to support the firms’ growth, particularly in generating alpha in a hyper-competitive industry.
“There has been a lack of insight into the role that technology systems played in accounting for why executives were not able to access the most basic information on the state of their businesses in order to take corrective action,” Ingo Walter, president of SimCorp StrategyLab, said.
The state-of-the-art systems would fix these problems and streamline operations, the research found.
The most comprehensive system would leverage technology quickly, allowing users to adapt to the changing needs of clients, regulators, and the market, as well as consolidating all data into ‘Big Data’.
“Big data techniques allow us to link data streams together to unveil new insights into customer experiences, including understanding customer tone.” Jim Smith, a Wells Fargo executive vice president, said in a Wall Street Journal column in August 2012.
The Advent Geneva, SS&C Portia, Eagle Star, and SimCorp Dimension are some of the most popular advanced products among investment managers.
The other option is to outsource, although this method has been losing popularity. Only 8% of investment managers surveyed were considering it.
Despite the clear advantages of shifting to modern programs, the study found that only 17% of current legacy system owners are considering a replacement in the next two years.
Their reluctance stemmed from fear of the unforeseen consequences that could arise after shutting down intricately entwined systems.
However, a number of asset owners have shown they understand the need for change.
“Just think about the number of positions in an institutional portfolio at any point in time,” Greg Williamson, CIO to BP’s $50 billion in pension assets, told aiCIO in December 2012. “We have over 10,000, and you want to know everything about them everyday. You can’t do that by hand. You need a system.”
Williamson and BP currently use a program called Octopus, a system conducting complex portfolio analysis/risk management and even scenario analysis.
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