Capital Markets Day 2011 Target operating models of the buy-side industry Marc Schröter, SVP Strategic Research Department
Capital Markets Day
2011
Target operating models of the buy-side industry
Marc Schröter, SVP Strategic Research Department
Australia market structure - example
2
Custody
Institutions Govt Unions
etc.
HNWI Retail
Third Party Administration
Retail Wholesale
HoldingsBank accounts
FX
Subscriptions / redemptionsUnit registry
DistributionsTax
Unit pricingInvestment accounting & tax
Post trade compliancePerformance
Pro
cessin
gM
an
ufa
ctu
rin
gD
istr
ibu
tio
nC
lien
ts
Boutiques
Fund Manager1 Fund Manager2
Hedge Fund
Fund of Fund Manager
Aus EquitiesProperty
Insurance
Super Fund
Wealth
Management
Investor Directed Portfolio Services (IDPS)
IFA2IndependentFinancial Advisor1
Manager ofManager
Platform
DistributionsTax
Purchases/ redemption
Margin Lending
Shares Other investments
IFA3
Model portfolio re-balancingRange of advice/ productsTax/ reporting
AssetConsultants
Managed Funds, Super, Shares, SMAs
Insurance
General/ Life
Buy-side Investment Management – generalised view
3
ALM &
Investment
Planning
Asset
management
(investment)
Operations &
processing
Core
Pro
ce
ss
Segm
ent Investors
(Pension, Insurance,
Sovereign Wealth, Retail, HNWI)
Asset Managers
(institutional, retail funds, hedge
funds...)
Administrators
(third party administrators,
custodians, fund administrators)
Investment mandate
Products & services
Service level
agreement
SimCorp Dimension
Investment management value chain
Front office investments
•Market research & information management
•ALM & investment planning
•Portfolio management decision support
•Pre-trade compliance
•Trade order & execution management
MO investment controlling
•Post-trade compliance
•Performance analytics
•Risk analytics
•Reporting
•Data Management
Middle office investment operations
•Matching & settlement
•Reconciliation
•Position keeping
•Investment accounting
•Corporate actions & income processing
•Cash/currency management
•Securities finance
•Collateral management
Back office administration
•General ledger accounting
•Fund accounting
•Custody
•Transfer agency
4
Target operating models - strategic considerations for business process outsourcing
Motivations
• Cost savings, convert fixed costs to variable costs, correlate revenue and costs
• Focus on core competences
• Scale / time to market
• Competitive advantage
• New regulation and one-time-only events
• New business line
Risks and considerations
• Loss of strategic control
• Vendor risk (single vendor versus multi-vendor, e.g. hedge funds and prime brokers)
• Dependency on vendor
• Minimised focus on IT advances and innovation – flexibility versus standardisation
• Vendor relationship management and responsiveness
• Data access, quality, timeliness, accuracy and security
• Service quality issues
• Irreversibility and flexibility to change model over time
• Penalties difficult to enforce
5
Target operating models – general direction of business process outsourcing
6
ALM
Consolidation, risk, performance, analysis
and reporting
Investment accounting
Investments and risk
management
(Client services)
BO operations
MO analytics and
reporting Core
=
in-h
ouse
Targ
et
Segm
ent
Investors (Pension, Insurance,
Sovereign Wealth, Retail, HNWI)
Asset Managers
(institutional, retail funds, hedge
funds...)
Administrators
(third party administrators,
custodians, fund administrators)
Non c
ore
=
outs
ourc
e
Investments (region,
sector, strategy..)
Operations
Operations
(Client services)
Best-of-breed systems strategy with no data management
7
Duplication of data
Reconciliation
Consistency
Granularity
No consolidated
overview
Multiple ‘versions
of the truth’
Operational systems
Market data
providers
Market data
Security master
data
Counterparty
data
Other external
data
‘Transactional’
3rd parties
Brokers
Custodians
Portfolio
management
Performance
Risk
Asset services
Fund
accounting
Investment
accounting
Client
reporting
DWH
Trading
Trading
Integrated all-in-one system strategy
8
Operational systems
Market data
providers
Market data
Security master
data
Counterparty
data
Other external
data
‘Transactional’
3rd parties
Brokers
Custodians
No data ambiguity
Consolidated
overview
Consistency
Granularity
Port
folio
manag
em
ent
Tra
din
g
Perf
orm
ance
Ris
k
Asset serv
ices
Investm
ent
accounting
Fund a
ccounting
Clie
nt re
port
ing
Common database
Target operating model: outsourced investment operations
9
Operational systems
Market data
providers
Market data
Security master
data
Counterparty
data
Other external
data
‘Transactional’
3rd parties
Brokers
Custodians
Split of master record
Reliance on TPA
• Data quality
• Accessibility
• Granularity
• Consistency
• Consolidation
Loss of control Port
folio
manag
em
ent
Tra
din
g
Perf
orm
ance
Ris
k
DB
TPA
DB
Clie
nt re
port
ing
Fund a
ccounting
Asset serv
ices
DB DB
Architecture with data management
10
BPM
Operational systems Data
ware-
house
BI / Reporting
Master data management
Market data
providers
Market data
Security master
data
Counterparty
data
Other external
data
‘Transactional’
3rd parties
Brokers
Custodians
Po
rtfo
lio
ma
nag
em
en
t
Tra
din
g
Pe
rfo
rma
nce
Ris
k
As
se
t s
erv
ices
Inve
stm
en
t a
cc
ou
nti
ng
Fu
nd
acc
ou
nti
ng
Cli
en
t re
po
rtin
g
Market data Positions and
transactions
Analytics
One set of data shared across systems
Market data acquisition
Data scrubbing to achieve golden record
DWH/marts for easy reporting
Estimated distribution of SimCorp clients
11
21%
48%
24%
7% Distribution of clients
Pension/ Insurance
Asset Management
Administrators
Other
SimCorp clients AuM
System Strategy
Inhouse
operation
Outsourced
operation Total
Integrated 30% 0% 30%
Core + add on 36% 1% 37%
Best of Breed 22% 10% 32%
Total 88% 12% 100%
Target operating model
Asset management
System Strategy
Inhouse
operation
Outsourced
operation Total
Integrated 15% 0% 16%
Core + add on 44% 2% 46%
Best of Breed 22% 16% 38%
Total 81% 19% 100%
Target operating model Pension/Insurance
System Strategy
Inhouse
operation
Outsourced
operation Total
Integrated 65% 0% 65%
Core + add on 20% 0% 20%
Best of Breed 14% 0% 14%
Total 100% 0% 100%
Target operating model
Market estimate
System Strategy
Inhouse
operation
Outsourced
operation Total
Integrated 14% 13% 27%
Core + add on 17% 17% 34%
Best of Breed 20% 19% 39%
Total 51% 49% 100%
Target operating model
Estimated distribution of clients – total market
12
SimCorp clients AuM
System Strategy
Inhouse
operation
Outsourced
operation Total
Integrated 30% 0% 30%
Core + add on 36% 1% 37%
Best of Breed 22% 10% 32%
Total 88% 12% 100%
Target operating model
SimCorp’s offerings and strategies
SimCorp Dimension is an enterprise platform which provides modular and fully
integrated application support for front-to-back processes in leading buy-side
institutions.
13
FO-MO-BO
FO-MO MO-BO
BO / ACC
Strategic focus: Front office
Data management and
reporting
SimCorp Dimension as a
Service (SaaS)
BO / ACC