"Perfection is achieved, not when there is nothing more to add, but when there is nothing more to take away." – Saint Exupery
I've always loved this quote which isn’t terribly surprising as I've always been drawn to architecture, design, and people that emphasize simplicity. I'm awed by those that can create something powerfully simple. It takes patience, pragmatism and demonstrates full control of their area of expertise. Based on recent conversations with clients, the buy-side is desperately searching for elusive simplicity.
I have no illusions that the investment management business is simple but going back to basics is imperative for clients that are facing strong cost pressure in all facets of their businesses including operations, data, technology, analytics, etc. A direct path to reducing cost is simplifying the operating model or technology environment, yet many buy-side firms are struggling to make headway. Our firm has been inundated with requests to help clients re-think their approaches with an emphasis on simplicity. Specific examples include business architecture efforts with the sole purpose of questioning why the client does what they do, and numerous vendor/provider sales efforts in which buy-side firms instruct vendors to stay true to their core product and challenge customization at every turn. It is our job as advisers to help ensure target models or solution design is straight-forward, easy to understand, and that requirements are distilled just enough.
Now, fixed income attribution and data warehouse architecture don't play by anyone else's rules; but they do benefit from a critical eye. If you look at the engine room of a world-class yacht, you witness incredible engineering but you will also note the absence of technology that doesn't have an express and clear purpose. The investment management community is desperate for those that can help re-focus on the engine compartment (oh, if we were all tasked with building new yachts instead of handed ferries and told to make them maneuver more nimbly!).
Building the case
Our clients are demanding simplicity, yet achieving that goal is a difficult road. I would argue that broad asset class expansion and building data management competencies has distracted many firms from asking the tough fundamental questions about their technology and operations. We have often spoken about changing the tires on a car while driving 50 miles an hour, but rarely questioned why we run that macro in the first place or if the cost of dynamic start of day is worth it. Those conversations are now receiving new life.
One ubiquitous challenge is that while the best solutions or designs are simple, they are not cheap. Many executives believe that simplicity will reduce cost immediately when in fact it takes cost and effort to remove bloat. Replacing even one legacy system can place major strain on an organization’s internal resources. Cultural resistance is another major barrier to any greenfield effort as it involves unwinding legacy processes and systems that may not have been questioned in decades. This can make staff defensive about an existing lack of controls or uncomfortable with the idea of finding an external partner or provider to support a commoditized function. Lastly, complexity is often hidden in system integration and it is important to directly tie efficiency gains to a firm’s ability to manage and administer data once, or as little as possible.
These fundamental efforts are expensive so cutting away the fat typically needs to be balanced with offering new value; this is where the art of transformation comes in. Actually demonstrating improved ways of working, while simultaneously minimizing complexity, is the equivalent to Mona Lisa's sly smile.
Ultimately, the future of the investment management industry rests in the hands of the firms that have a scalable and integrated operating model. The simpler the technology and operations, the nimbler and better equipped a firm will be to harness new investment tools and product types. Getting to this state might be costly and complicated but the end result shouldn’t be. As Saint Exupery suggests, keep it simple.