The virtues of best-of-suite system technology
What started off as a niche trend, whereby start-up fund managers would pick more suite-based technology solutions because they lacked the capital, or manpower, to operate multiple systems, has widened out in recent times.
According to Eric Bernstein (pictured), President of Broadridge Investment Management Solutions: ”What we observe is that now mid-sized and larger hedge funds are also going best-of-suite instead of best-of-breed, for similar manpower and cost reasons. They are looking more closely at the cost of maintaining multiple systems because their margins are getting squeezed."
The logic is that if they can get multiple functions from a single product, that gives them one source of truth, eliminating a lot of the inefficiencies that come with plugging multiple systems together and hoping that the data arrives in a consistent fashion.
"Another trend we are seeing, which I think is correlated, is a stronger desire to outsource manpower to firms like Broadridge to take care of reconciliation, reporting and so on," says Bernstein, who expands on how to define best-of-suite: "What I mean is products that have multiple functions supporting multiple user types within an organisation, and which enable organisations to fulfil the investment management cycle. Everything from front-office idea generation and execution through to the back-office for clearing and reconciliation could be considered a cycle, and that cycle could consist of four or five different best-of-breed systems. In the best-of-suite scenario, it's made up of one."
Organisations that choose a best-of-suite solution get two clear advantages, says Bernstein.
"Firstly, whether I'm managing it internally or outsourcing it to a company like Broadridge, it's still a single application that is much easier to maintain, with respect to the technology infrastructure. You have no risks associated with having to do upgrades for four, five different systems.
"Secondly, the fact that I can pass things easily across the chain, from order creation in the front office to checking position limits with compliance, through to the data warehouse for the middle office to do reporting – without ever leaving the infrastructure – is hugely advantageous. It means that everything is in real time. If you have workflows built in for checks and balances, compliance rules, etc, it all runs seamlessly in the background."
Using disparate systems for compliance tasks and trade execution, one has to make a number of assumptions, the most important being that both systems have the exact same data. By not using a best-of-suite solution, it introduces risk because the data in the compliance system might not be the same as that in the PMS/OMS system.
By having all of the data stored in a single system, however, the compliance rules are based on the very same data used by the front office trader, which is also the same data used by the back-office accounting team.
"Our platform supports clients front through back. They have the ability to start their day by viewing the P&L in real time, their trading operations – everything from order origination through to drop copies sent back from counterparties – monitoring pre- and post-trade compliance, and pushing end-of-day position data to the back-office and to their respective counterparties.
"That whole chain of events is happening in a single database system, hosted and monitored by us," concludes Bernstein.