TABB: Legacy IT is hurting buy-side alpha generation
In its latest report “Breaking Down Buy Side Barriers: Achieving Alpha through Agility,” analyst firm TABB Group has found that investment managers are struggling to cope with trade life cycle errors as a consequence of technology failure.
Support for all asset classes and security types, multiple currency transactions, geographical locations and asset allocation strategies is highly dependent on the structural design of the technology solutions leveraged.
The report, written by senior analyst Dayle Scher, found that 50% of investment management firms experience technical problems in executing pre-trade compliance checks, exposing them to financial and reputational risks. Of those who had difficulty some 29% found that trade logic integration was a cause and a third reported the time the process took created challenges.
Nearly one-third of the buy-side firms endure errors when executing asset allocation programs because of their technology architecture, while two-thirds of buy-side firms reported finding it painful to implement new geographies and/or new instruments due to their current system architecture.
Trade errors due to inaccurate data were reported by 52% of the firms’ surveyed and front / middle-office staff reported spending an average of one hour per day manually identifying, investigating and resolving discrepancies and errors.
Scher explains that firms struggling to move forward with technology that is poorly integrated will pay the price for this decision in terms of trade errors, opportunity costs and compliance breaches.
“Asset managers should not be accepting any compliance breaches or trade losses due to data errors as a cost of doing business, especially as the expenditure of replacing outdated or inefficient front-to-back legacy applications may be less than the overall costs of not doing so,” says Scher. “An integrated architecture built around a single repository for storing transactional, client and reference data provides the cleanest option, while also generating greater performance by allowing the front office to focus on their core job without the distraction of having to wait for data issues across the front, middle and back-office to be resolved.”
Reported by Dan Barnes