There are a number of reasons why asset managers are increasingly looking to integrate their performance measurement and risk analytics systems. 

At a time when IT budgets are coming under more and more pressure, system consolidation can be a more cost effective option. It’s also easier to implement and maintain compared with separate platforms that may be siloed in different parts of the business.

Equally, a consolidated system can ensure that performance analysts and risk managers are using compatible and directly comparable data. Using a single platform across the business can help avoid the kind of analysis errors that are all too common when data is sourced from multiple systems which may, for example, take an inconsistent approach to the way in which returns are calculated.

Eradicating these errors doesn’t just offer benefits in terms of the accuracy of the results generated by the middle office: it also means that time and resources are not wasted unnecessarily on manual interventions and workarounds when calculation errors are identified.

The weight of legacy

But despite these clear advantages, the move towards integration can in some organizations be hampered by long-held preferences on the part of various analysts or teams within the company.
This has a lot to do with the fact that, in the past, many performance-management systems were not sufficiently flexible to meet an asset manager’s specific needs – whether these related to how returns were measured or what approach to risk analysis they took. As a result, asset managers frequently found it necessary to customize their platforms in order for them to function in the appropriate way.

This customization may often have taken the form of workarounds that were bolted on to the original software by internal IT staff as per the analysts’ requirements – and it is not uncommon today to find managers using several different legacy performance measurement platforms, each of which has been patched up and customized according to various teams’ conflicting demands.

But as many businesses have begun to discover, this approach can have serious drawbacks: a customized system might work effectively for a period, but firms may later discover that subsequent upgrades from the vendor either cannot be implemented, or, in the worst case, they are incompatible and cause the platform to malfunction.

At the same time, while a specific type of customization could be appropriate at one point, changes in organizational demands or requirements may mean such changes need to be rolled back – often a risky or difficult process.

Finally, by making changes in-house, companies run the risk that, when the IT staff originally responsible for customization leave the business, the loss of their expertise means the platform can no longer be properly maintained or upgraded.

The flexibility of configurability

Despite these potential drawbacks, it is easy to understand why some teams can be reluctant to take the step forward to a unified cloud-based system if their existing platform – with all its customization – appears to be effective. After all, the tweaks they have made in terms of software bolt-ons and patches may be the result of several years’ development and tinkering.

But in such cases, it is important to understand one of the other main advantages of the consolidated, cloud-based approach: configurability.

While customization involves fundamentally – and often irreversibly – changing the performance measurement system a company uses, configuration means that variations in the way, say, returns or risk numbers are calculated can be turned on or off depending on the user’s preference without them affecting the underlying platform or the work of other end users in the business.

As such, different teams within the organization can use the same system but each configure it according to their own requirements. For example, risk managers are free to use a variety of controls on specific sets of data or portfolios. These controls can be set up as templates and then in future applied whenever necessary. But because the system does not need to be fundamentally changed in order to make these approaches possible, other users’ ability to alter parameters or use alternative value-calculation methods, for example, will be unaffected.

Companies that use a consolidated, cloud-based platform will also benefit from the provider being able to constantly develop its system and implement upgrades more frequently – and with no impact on, or interruption of, performance.

Asset managers who currently use a number of different, customized platforms may take the view that, if it ain’t broke, don’t fix it. But the chances are, a system breakdown – with the consequent costs and damage to the business – could just be a matter of time.

Takeaways:

• Integrating a number of performance measurement and risk analytics systems together offers asset managers benefits in terms of cost efficiency and operational risk control.
• But staff in some organizations can be reluctant to give up legacy platforms that have been customized internally to meet specific requirements.
• A high level of customization means that older systems are difficult and costly to upgrade – and they can become significantly less effective over time as organizational requirements change or the staff responsible for customization move on.
• Configurable cloud-based platforms are capable of dealing with any of the issues that, in the past, firms have used customization to address.
• This configurability makes such platforms far more flexible, upgradeable and future-proof.

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