Hans Otto Engkilde, SimCorp

European buy side positions for growth

Almost half (49 per cent of European buy-side Heads of Operations have made entry into new markets their top strategic priority for 2019, with a further 48 per cent fixed on facilitating asset inflows. 

That’s according to the third annual 2019 European InvestOps Report: ‘Achieving Operational Agility and Outperformance’. Commissioned by SimCorp and independently conducted by WBR InvestOps.

Driving performance (47 per cent) was next on the agenda, outweighing priorities concerned with decreasing operating costs. The findings suggest a change of tack in the industry in the last 12 months, with a renewed focus on growth opportunities, as firms attempt to regain lost ground.
Carried out by WBR InvestOps, the report surveyed 100 buy-side Heads of Operations from asset management, pensions and insurance firms with AUM above EUR 10 billion, across the UK, France, Germany and the Netherlands. Despite a turbulent year of new regulations, geopolitical uncertainty, fee compression and M&A, the findings suggest the European buy side has turned a corner, with a new forward thinking outlook. While efforts towards achieving automation (49 per cent) and the creation of a golden source of data/Investment Book of Record (42 per cent) continue to be the primary approaches to achieving strategic priorities, this year’s report sees a renewed and progressive drive to growth and consolidation, with 41 per cent also set to adopt multi-asset enabled investment platforms.
Regulation meanwhile, has played a mixed role. Viewed by some as a driver for lasting change, it has pushed many firms to tackle transparency and reporting challenges, arising from legacy systems. On the other hand, it appears the speed at which regulation is coming into force, is seen as a burden, with 62 per cent of buy-side Heads of Operations yet to start projects for the incoming Uncleared Margin Rules (UMR). This is despite an estimated 12-18 month implementation process and with the regulation coming into full scope next September.

Challenges across the front office and alternative investments were also noted in the report: with the ability to accurately forecast cash (47 per cent) being the number one challenge, followed by centralising data for a consistent firm-wide view of the market (31 per cent).

Despite many operations leaders stating efforts towards building a golden source of data, the lack of a centralised data source, still remains one of the biggest challenges for the front office. This is impacting both their control over and also access to key data sets for investment decision making, causing a crucial difference between generating alpha and a losing position.
Across Alternative Investments and Private Debt, data collection (46 per cent) is the top challenge followed by efficiently processing unstructured data.

Some 58 per cent of respondents are set to limit investments into exotic products as a way of mitigating this challenge.

With a combination of disparate, best of breed systems and manual processes forming much of today’s alternatives solutions, it is perhaps unsurprising to see over half of the firms surveyed, struggling from data issues. What is surprising is that these firms are considering limiting exposure, a risk to alpha generation, rather than countering the operational challenges. By adopting a multi-asset Investment Book of Record, as proposed in earlier findings, firms can easily standardise data to provide access to valuable insights, in order to eliminate these problems.
David Weaire, Head of Operations, Investment, Investec Asset Management and one of the report’s contributors, says: “Getting the foundation right is crucial for investment managers as they embark on the journey towards supporting investment at optimal efficiency. Having accessible, standardised data available to those making daily investment decisions is a key tool, to optimise how these choices are made and improve the chance of finding alpha.”
Hans Otto Engkilde (pictured), Managing Director and Senior Vice President SimCorp UK, Northern Europe and Middle East, says: “The drive towards outperformance amid regulatory change, cost pressures and an increasingly uncertain global outlook has pushed the buy side to become more introspective. In this new world order, where outperformance is the goal, seamless operational excellence is key and it is positive to see many firms fixed on seeking new opportunities for alpha, as well as considering costs. In a market that has rediscovered its will to win, the agility and speed that comes from an automated, multi-asset, front-to-back system will determine future success.”

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