• How does it fit with the IT strategy and target architecture?

• How does the vendor’s vision align with the organisations future strategies?

In addition, an important point often overlooked is that an organisation is buying not just a system but also the vendor. The vendor and organisational fit is crucial. This relationship can be a long one and will work best when treated as a strategic partnership regardless of commercials.

Current strategic system selection thinking

A majority of the IT spend at investment managers has previously been targeted more towards back office functions. Over the last few years there has been a gradual shift to a greater proportion being spent on middle and front office initiatives. Investment manufacturing activities such as portfolio analytics, modelling, order management and direct front office support functions are generally now taking precedence.

One of the main reasons for this shift is current state operating models are limiting investment managers’ ability to meet strategic objectives. Their high risk operating models are leading to higher costs and lack of scalability. As a result, one of the top criteria for IT investment is risk reduction to remove manual processes, replace spreadsheets and implement better operational controls.

Clear separation of front and middle office functions has been a resulting strategic move to better enable control, efficiency and effectiveness to support growth initiatives. This leads then to reviewing front and middle office system requirements and what are the core and non-core areas with a view to looking at outsourcing options if appropriate. It’s crucial that system selection is driven by the operating model which should be reviewed prior to or as part of any system selection process.

Several investment managers have taken steps to invest in best of breed front office solutions with additional business drivers being:

• Requirement to support both alpha (asset complexity) and beta (scale and efficiency) investment propositions

• Due diligence being expanded to assess operational capability and process scalability of investment process

• Complex business models – multi boutique, multi asset class / investment styles

• Asset consultants and clients scrutinising operational capability more closely

• Increasing pre-trade compliance requirements

These business drivers and their priorities will differ between managers but they must be clear, agreed and communicated to ensure the right solution is chosen to suit the organisation’s immediate and future needs.

One of the main focuses recently of many managers has been unit pricing and validation initiatives. The raft of APRA enforceable undertakings has required many managers to tighten unit pricing processes and controls adding to the focus on middle office functions and the case to centralise. Creating middle office centres of excellence to act as a gatekeeper between business and service providers, oversee high risk operational processes and provide centralised data validation and support for the front office makes sense.