Archer Insights

Energizing Connections for Added Value

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The internet of things has fueled technologic connections between seemingly disparate objects. Consumers can now use a single mobile device to operate thermostats, lightbulbs and doorbells, all made by different manufacturers but controlled by a single hub. At the same time, we also have come to expect automatic updates to the software running the individual devices. Mobile phones and tablets know when an update is available and can be set to automatically install the new software. This combination of interconnected devices and timely updates is a powerful one. It allows us to function efficiently and ensures that individual devices do not become disconnected because of outdated software.

While consumer interconnectedness fuels convenience, for the financial services industry, connected systems are crucial for a business to function. Over the years, investment managers and their service providers have evolved to handle ever more complex products, increased regulatory scrutiny, and the need for speed in today’s global trading environment. For many, this evolution has been accomplished by plugging a series of discreet systems together. Portfolio accounting for institutional investors is connected to an account maintenance system for retail SMAs. A reporting engine is connected to a performance accounting engine. An order management system is connected to a third-party trading system.

Unlike in the consumer world, these connections are rarely controlled by a single hub and software updates are far from automatic. The connections may be in place, but differences between the systems are a constant source of angst for investment managers and particularly irksome to compliance officers. Individual systems may calculate security valuations or accruals differently, creating a cash mismatch. Some systems use CUSIP and some use SEDOL to identify securities, creating a position mismatch. Some calculate performance values only in US currency, requiring an interim application of FX. Some are entirely disconnected from executing brokers, necessitating manual trade settlement.

Stepping outside of the systems used within a single investment management firm reveals even more complex connections. Data feeds from custodians, trade files sent to brokers, models delivered to sponsors... Collectively, external systems and internal technology and processes make up an ecosystem that is the engine for an investment manager's business. Successful managers who efficiently navigate this ecosystem unlock growth potential, whereas those who struggle to keep up with data flow are mired by resource-consuming processes.

It is unrealistic for business to expect consumer-like simplicity for maintaining individual systems and their connections – the complexity of enterprise software does not lend itself to be set for automatic overnight updates, and much more is dependent on successful updates than having to manually turn on a lightbulb should the software fail. Paying attention to what happens in the space between all of the connected systems ensures the continued effectiveness of the “whole.” In this case, a successful investment management operation. It is for this reason that we at Archer often focus on working in the space between investment management systems to energize connections by validating data, mediating inconsistencies across platforms, and pre-testing outputs.

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