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As new financial technology develops, it is increasing the number of global opportunities open to asset managers. With each improvement in connectivity, new regions around the world become potential customers and partners.
Buy-side firms are scanning wider horizons for investment opportunities as well as prospective clients. Market conditions in recent years, which have seen artificially low rates and volatile equity performance, are leading investment managers to consider other options to achieve the returns they need, such as emerging market equity and fixed income.
However, moving into previously unchartered markets can bring new technological considerations.
Investment strategies focused on new regions can create operational complexity and risks. These need careful monitoring. For the front office, being able to undertake this in the same way they have always assessed traditional asset classes is critical for well-informed decision-making and risk management.
A recent survey of front office participants at buy-side firms, conducted by SimCorp, found that nearly a quarter said they were uncertain about the ability of their system to support new market entry (24%), while twenty-one per cent said the same for new asset classes.
One of the reasons that buy-side firms are finding themselves hampered operationally is their dependence on legacy software which is underpinned by manual processes. Not only are these systems resource intensive, but they are also difficult to modify and update as the market landscape changes.
What’s more, only a quarter of those surveyed expressed confidence that their front office IT systems were able to automatically integrate data from external sources. Data originating from outside the front office, such as risk and performance metrics, corporate actions and collateral levels, for example, are all critical to timely investment decision-making and providing a complete and accurate picture of positions. Almost one in five (18%) of those surveyed indicated that their ability to generate and view intraday positions was inadequate. As some new, alternative products and markets can be higher risk, it is even more imperative that this risk can be effectively monitored.
Investment managers competing in this new global environment must be agile, ready to enter and exit international markets as conditions demand. For firms who want to be able to take advantage of global growth, they must ensure that their operational capability can match their ambitions.