The volatility undermining the domestic market from the outset of 2008 will not only challenge funds managers but also their backoffice architectures as demands on risk reporting intensify, and transaction levels surge.
Superannuation funds, the senior clients for many funds managers, are becoming more concerned with the risks facing managers they have assigned mandates to, and are expanding their risk management protocols, Nick Frolich, sales director for DST International (DSTi), vendor for Australia’s most-used portfolio administration software, says. “As the market drops, risk becomes more prevalent. Super funds are putting more risk processes in place,” Frolich says.
However reporting on investment risk will not be the only test for backoffices as volatility continues. Peter Hill, SimCorp Asia managing director, says that as managers change their holdings in response to January’s market slide, the escalating number of transactions will “stretch” systems. Managers will encounter maintenance costs brought on by legacy systems struggling with the turbulence. “It shakes-down systems,” Hill says.
New inflows to investment strategies less correlated to equity markets, such as hedge funds, direct property and gold securities, should not disrupt backoffice systems too much, both Hill and Frolich say. Hedge funds, for example, “just represent another set of instrument types,” Hill says.
Responding to funds managers’ development of specialised investment instruments, SimCorp’s head office in Denmark has revamped its XpressInstruments module, which enables clients to develop and use investment instruments within Dimension, the vendor’s backoffice software, without using spreadsheets or importing additional software. The module fits into the financial instruments component of Dimension. “It will allow funds managers to more rapidly get products into the market,” Hill says.
He says the module is capable of halving the amount of time it will takes managers to bring instruments into the market, which is currently 18 months. Meanwhile, SimCorp has won Vanguard Australia as a client from incumbent DSTi. The $77 billion index manager will implement Dimension in its middle-and backoffice departments.
Jacqui Cincotta, Vanguard head of investor services, says the vendor’s single platform, common data environment, client-configurable process flows would allow swift adjustments to support new clients, products, instruments and asset classes.