The investment management software industry continues to evolve as we have seen new players emerge offering modern technologies and expanded functional offerings. Vendor M&A also continues to integrate former ‘best of breed’ offerings into enterprise platforms supporting more consolidation of functions. For example, we see front and middle office functions merging into common platforms, in addition to public and private asset support. Lastly, we have a set of legacy vendors who continue to enhance their cross-functional solutions with the goal of widening their product offering.
All the while, investment managers are launching new products, moving into new asset classes, and want to achieve efficiency and cost savings through scalable processes and technology. A confluence of these factors is shining light on a compelling case for considering more consolidated software platforms.
When defining the term ‘consolidated,’ the context is not meant to infer a single ‘front-to-back’ solution meeting all-in requirements. Although it sounds good, the reality is most organizations will require flexibility to integrate with other investment systems and have plug-and-play capabilities.
Over the past 20 years, I’ve witnessed and participated in debates over implementing ‘best of breed’ solutions versus more consolidated platforms. Back then, many mid-large size firms with AUM > $100B typically started out with a ‘best of breed’ approach to their application architecture, as the benefits of ‘specialization’ outweighed the benefits of having a single platform. Consolidated vendor choices were limited, and there was less appetite for making more ‘enterprise-wide’ decisions around investment software.
In the past ~5 years we have seen more investment managers evaluating and implementing consolidated platforms as the business case has shifted with more convincing benefits.
What are some of the key considerations and factors driving this strategic shift in application models?
- Choice – as noted above, there’s more viable software options for consideration. Citisoft has written on this topic in prior blogs and white papers, covering software vendor consolidation, M&A, ‘front-to-back’ offerings, etc.
- Closing the Gap – the gap between ‘best of breed’ and consolidated vendor platform functionality has narrowed over the years. Yes, there are still instances where functional richness in specialized platforms remains superior, however the offsetting stand-alone (or integration) costs are getting more attention from senior executives.
- Cost and Efficiency – investment managers are under cost pressure and scalability is clearly a powerful lever for firms to utilize and grow. Current state assessments reveal significant pain points and issues with disjointed architectures, resulting in consolidated platform options being brought to the forefront for integration, reconciliation, and reporting efficiencies to name a few.
- Data Management – simplification of data mastering and transaction processing activities in fewer places unlocks benefits and enables more timely updates in the investment process.
- Single Source of Truth – a key driver in consolidated platform offerings is a shared, central data store which the organization is working from to understand current positions, cash, analytics, etc. Having a common understanding of data across the organization is a very powerful feature.
On the flip side, challenges in selecting and implementing consolidated software platforms include:
- Enterprise Decisioning – obtaining consensus agreement from a diverse set of executives across the organization can be challenging and involves alignment on not what’s best for a particular team(s), but what’s best for the overall firm.
- Fulfillment of Specialized/Complex Requirements – there may be critical functional gaps in specific areas (e.g., front office OMS) and if not addressed can introduce challenges to implementing a consolidated platform. In these cases, flexibility and customization need to be considered in architecting a broader ‘end-to-end’ solution.
- Implementation Complexity – given a wider scope of software functions, implementing consolidated platforms involves more cross-team coordination, decisioning alignment, and dependency tracking.
- Consolidated Vendor Risk – having fewer vendors in the mix introduces more concentration risk by ‘putting all (or more) eggs in one basket.’ Firms need to take proper due diligence to ensure their comfort in vendor longevity, reliability, SLAs, contingences, etc.
In summary, asset management firms considering a strategic look at their application architecture should contemplate consolidated software platform options. Potential benefits can provide organizations with competitive advantages and contribute to cost savings, reduced risk, operational efficiencies, and increasing revenues through more trusted and timely data. Obtaining organization-wide alignment with a diverse set of business leaders may be challenging, but this should not be an upfront deterrent to include consolidated software platform options in your evaluation/selection process. You may be surprised at what the cost/benefit analysis reveals.
