The Middle Office Test Kitchen

I don't cook but I bake.  I always take a few vacation days before Christmas and spend the days making cookies to spread holiday cheer (and of course, consume myself).  I have a handful of delicious cookies in my repertoire but this year my five year old son (who somehow was introduced to Pinterest) "pinned" about a dozen new types of fancy cookies for us to make. Now I don't believe it's the thought that counts – desserts need to be delicious to warrant the calories so I need to get into the "Test Kitchen" over the next few weeks and try out a few recipes on my little guinea pigs (read: my kids and husband) ahead of the big cookie making project.

Now you are thinking "Is this a baking blog?" It isn't so I will get to the point.

In the last 5+ years, the growing trend in investment management of choosing to outsource the middle office has given service providers plenty of opportunity to get their standard offering right.  If you are a traditional investment manager, then chances are likely that you fit into someone's cookie-cutter service offering, will require minimal customization work, and will have a timely conversion.   Further, once you are up and running you will have accurate start of day positions, investment accounting and pricing, streamlined trade, corporate action and cash processing, timely reconciliations, accurate performance, and enhanced reporting.

However, the service provider market is still in its "Test Kitchen" for those who don’t fit the cookie-cutter model.

You may have seen that some of the recent large deals in this space have been in the news for taking longer than expected to complete.   There are several reasons for this, none of which should seem terribly surprising.  In many cases, the unique requirements of the asset manager have necessitated comprehensive functional and technical enhancements to the operating platform deployed by the service provider.  Supporting complex multi-asset class strategies and OTC derivative products, real-time cash projections, and non-standard performance calculations all contribute to scope (and in some cases, dreaded scope creep), and often lead to an extended project timeline to ensure that the service provider gets it right and is able to meet the SLA’s and KPI’s demanded by its client base.

While they might still be in the "Test Kitchen", some of the advances that service providers have made in the past few years make it feel like the timer is about to buzz.  Service providers are investing heavily in their platforms to better support complex requirements – some through technology investments via partnerships with clients; some through acquisition of other specialized providers and their technology.

In addition to enhancements to middle office offerings, in the near(ish) term, I think we will likely see service providers invest in enhanced offerings for the front office.  Right now, the market for portfolio and risk analytics is cornered by a limited number of providers.  Wouldn't a one-stop-shop be amazing?  The sales pitch could simply be: "We rule. We do everything!"

Hopefully you have seen Citisoft's recently published paper "North of the OMS". In it, we outline some of the challenges and considerations in the portfolio and risk analytics space which can help define the corresponding requirements “South of the OMS”.  At Citisoft, we have significant experience understanding unique requirements (both North and South of the OMS) through our experience working directly with alternative investment managers as well as assisting the top service providers with client conversions and strategic platform initiatives. We know that cookie cutter isn’t a fit for every firm, which helps us take projects from the test kitchen to the table faster.

Happy Holidays and Cheers to 2016!