Investit, a specialist administrative consultant to funds managers, has completed a survey on the IT budgets of 29global firms with $3.25 trillion under management and a combined IT spend in 2008 of $1.53 billion, and found that the smartest firms are doing more with the same or less. The head of Investit’s Australian office, Doug Neill, said the consultancy’s latest ‘IT Value Survey’ was conducted in late 2008 and focussed on the effects of the financial crisis. “Inevitably, as markets have contracted, budgets have come under pressure. However for IT, that’s not the full story,” Neill says.
“The overall average budget cut was8.78 per cent for 2009 compared to 2008, but a quarter of those surveyed increased their budgets for 2009 citing improving operational efficiency and supporting business growth as being the main drivers. ”Firms decreasing spend did so by an average of 15.7 per cent but the quarter who increased their IT budgets did so by 13.7 per cent.
Neill says there is strong correlation between charging bands – that is, the average fee a firm charges across its funds – and the change in budgets. “Firms with higher charging bands, those who tend to have more active management styles or more complex instruments are taking the largest reduction – 22 per cent for 2009. However, firms in the low charging bands, that is less than 20 basis points, are actually increasing their budgets over 2008. We also note that nearly half of any cuts were taken in 2008.” Neill says it is interesting to see what firms have done over the last few years as the IT environment has become more challenging with more complex instruments, more markets, different distribution strategies and globalisation to cope with.
“IT has concentrated on ensuring that they have particular skills in-house. The effect has been to reduce the amount of contract headcount as these are generally related to project activity. However there was not a massive reduction in permanent head count.” Indeed, the survey discovered an overall headcount reduction of only around 5 per cent between 2008 and 2009, with the contractor workforce taking the brunt with a further 18 per cent cut planned for 2009 on top of the 2008 reduction of 10 per cent.
“The consensus was that although the markets had slowed down…the business environment was no less complex than a year ago and having your internal expertise was essential to provide good IT for your business. A number of firms said that they were also exploring ways to make their IT infrastructure more cost effective,” Neill says. Neill also notes that although absolute IT budgets increased in the five years up until 2009, the ratio to operational costs and revenue had been trending downwards.
“This means that other costs inside investment firms have been rising much faster than the IT budget. You could say that investment firms are getting more out of their IT,” Neill says. The survey found 2009’s reduced project spend would be focussed on data management, front office systems, infrastructure and dealing with legacy derivatives on the books. Neill says that system infrastructure in fact leapfrogged front office systems and derivatives processing to rise from third to first in terms of project focus in the latest survey.