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Enterprise-wide Approach to Data Management is Focus of Buy Side Middle Office, Says Beacon Consulting Group

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Data management has increased in importance for the middle office of buy side firms, according to a recent survey by consultancy firm Beacon Consulting Group. The survey, which involved responses from 40 investment managers, focused on the challenges and opportunities facing buy side firms in the middle office.

Keith Brown, president of Beacon Consulting Group, explains that the results of the survey were revealing about the importance that data management has to play for these buy side firms. “Investment managers tell us that the middle office is predominantly about data – capturing it, reconciling it, owning it, and making it useable and available throughout the firm to enhance decision making. The survey results indicate that enterprise-wide access to quality, timely data is a critical component in driving operational efficiency, asset growth and investment performance,” he says.

The survey is a follow up to the firm’s white paper “Opportunities in the Evolving Middle” office, which concluded that the middle office is now a “critical component in the investment management lifecycle”. The survey involved a range of senior executives from both large and small investment management firms, including chief operating officers, chief financial officers and senior investment operations executives.

The definition of what actually constitutes the middle office is the first area of discussion for the respondents and they selected the top 15 functions associated with the area. The functions largely sit around the areas of investment management support, client services and back office monitoring, but the report notes one anomaly. “One possible surprise on the list was the high rating for management reporting, which reflects the recent market volatility and the need for data on which to make timely and accurate decisions,” it states.

Beacon Consulting Group identifies the changes that the current market environment has caused within the middle office, including an upsurge in investment in technology. Accordingly, 81% of respondents in indicated that they have reviewed their middle office operations within the last two years and nearly 75% of respondents indicated that they plan to do so again within the next 12 months. The focus is on achieving cost savings, improving quality, assessing internal capabilities and expertise, focusing on core competencies, rationalising technology, and servicing new product launches, says the consultancy firm.

The financial crisis highlighted gaps within the middle office, according to 41% of the respondents, especially in the areas of real-time reporting, reconciliations, data warehousing and management reporting. The firm concludes that these gaps provide an opportunity for the vendor community to capitalise upon. “Opportunities abound for service providers who take the investment manager’s perspective and become an extension of the investment manager’s operating model by understanding the objectives and offering the customisation to support these objectives,” says the report.

The firm suggests that investment managers that choose to retain middle office functions in-house can leverage new technology systems or ASP and software as a service (SaaS) models from the vendor community to fill the gaps. It adds that those considering outsourcing are increasingly viewing it as a strategic alternative. According to 56% of respondents, the real value in outsourcing is the service provider’s ability to customise back end processes, such as data warehouses and performance reporting, says the report.

Outsourcing is particularly popular for data related functionality, according to Beacon, including dashboard reporting, risk management reporting capabilities, management reporting, start of day packages, real time performance reporting, and enterprise data management (EDM). This seems in keeping with the current level of investment that has been going on in the market, with the rising popularity of the SaaS model and recent vendor wins in the reference data community.

The firm recommends that vendors seeking to provide services in these areas must change their tactics and tailor their approach to the buy side. “Service providers that shed the custodian’s view of the world in favour of the investment manager’s view of the world are best equipped to succeed in the middle office outsourcing space. Responses to requests for proposals (RFPs) should highlight how the service provider can become an extension of the investment manager’s operating model by understanding the investment manager’s objectives and offering the customisation to support these objectives,” the report concludes.

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