As pension funds and investment firms come to rely more heavily on technology, they need to know how to get the best out of what can be a considerable investment. Part of the trick is making the right choice of system, but much can also be gained or lost in the way a system is implemented. Equipping those that will use the system with the proper knowledge and skills is also essential. But if properly handled, technology can bring considerable benefits and measurable returns on investment.
The first step in selecting a system is to specify the organisation’s requirements. This should be done both at a high level, in terms of what the organisation trying to achieve in bringing in new technology, and at a lower, more detailed level in terms of required functionality. An organisation should clarify issues such as whether it is trying to automate or otherwise improve processes like managing orders or portfolios, or introducing new functionality such as sophisticated risk management or performance measurement, says Päivi Karesjoki, director of the asset management division of Stockholm-based financial systems supplier Trema.
In terms of systems, there is no one size that fits all, says Julia Hobart, worldwide partner at global consultants Mercer Investment Consulting. The choice of system will depend on a number of factors, such as the type of organisation, its size and geographical dispersion, its type of investment and whether it is more quantitative or qualitative, she says. Karesjoki agrees that the nature of the organisation will affect the system requirements. For example a pension fund that undertakes its own investments may trade less frequently than an asset manager, so the asset manager will require a greater degree of automation in order management and perhaps real time performance of analytics and transaction processing. But she points out that modern systems are often flexible, offering optional modules specialised for particular requirements such as automated order handling.
Depending on the application and the organisation’s IT resources, it may want to build a system, but the trend in the industry is strongly towards purchasing third-party software, particularly for systems of any complexity or size. That leads on to the selection of a vendor and here specialist consultancies can help an organisation more quickly identify a short list of potential suppliers through their knowledge of the market.
Organisations should put out a request for proposals that require vendors to provide formal, written replies about how their systems could meet requirements, which can be useful documents through both the selection and implementation stages, says Jonathan Clark, executive director of London-based investment technology consultants Citisoft. Short listed vendors should be brought in for workshops where the organisation can “look under the bonnet of the software and prove to themselves that it works in a satisfactory way,” he says.
“The most important thing to look for is that the functionality meets requirements, but there are also a number of other important factors to examine” says Clark. Vendor credibility is one. Is the vendor financially stable and does it have reference sites with similar organisations using the same product for similar purposes? Then there is the issue of the technology on which the system is built. “There is often a trade off between older systems which tend to have more breadth and depth and newer systems which don’t have all that functionality but are built on newer technology,” says Clark. Recent innovations, such as the Java environment, web services and so on, can be considerably more flexible and have higher performance than older technologies.
But buying the right systems is only part of the story. How the system is implemented can have a substantial affect on the benefits it brings. To start, it is critical that an organisation spends adequate time planning its implementation, says Karesjoki. Sufficient resources must be allocated to guarantee the project success and it must be a priority for the staff involved. However, “in our experience, the support of top management is the most important factor in the successful implementation of a new system,” she says.
Clark cautions an organisation not to expect a big system to be like a washing machine. “You can’t just plug it in,” he says. “You must expect to mould business processes around the system to make the best use of the workflows in the system.” Modern systems tend to be highly configurable and need to be configured correctly and without losing sight of the original objectives and requirements of the system to get the best out of them. Karesjoki agrees and says that an organisation should beware of implementing outdated practices with its new system but should take the opportunity review and redefine processes and workflows to obtain the greatest efficiency and benefits.
One of the most important elements is getting the data structure and data input and output right, says Clark. The data structure can determine how easily and usefully the organisation can access and analyse information in the system. The data should be structured according to the organisation’s view of the world, for example in terms of how it classifies investments and the entity hierarchies it uses. But it is important to have flexibility, to allow an organisation to modify its analytical and reporting facilities as it evolves.
In the implementation schedule, an organisation must allow enough time to prove that the system actually works, says Clark. There will be technical tests of the system’s performance and functionality and user acceptance tests to demonstrate that it does what the users expected it would do. These tests should be carried out formally, by identifying test cases, gathering the required data and giving staff the necessary time to participate fully in the process, he says.
And don’t forget to train the people who are going to use the system so that they know how to get the best out of it, says Karesjoki. And give feedback to the vendor, with suggestions for enhancements that it can incorporate into future releases of the software.
A carefully selected system implemented with due care can bring considerable benefits to an organisation. These days, return on investment tends to be measured in terms of improved investment performance, reduction of operational costs and, for asset managers, improved client servicing, says Clark. The first can be difficult to quantify. Client servicing can be improved through better reporting and performance measurement, greater transparency on risk and so on. Operational costs can be reduced through automation of former manual processes, the straight-through processing of transactions, more efficient and error-free communications with others in the investment chain and so on. For example, The Local Government Pensions Institution in Helsinki was able to reduce the staff it required for transaction processing by 40% with the installation of an automated system from Trema, claims Karesjoki.
But a modern system is not a panacea and will make its own demands on the organisation, warns Hobart. “Technology can create as many problems as it solves,” she says. An organisation must not be blinded by the wizardry of modern computing, but must keep sight of where it is going and why it is using the system in the first place. However, “when used well, technology can make the flair and subjective parts of the_organisation work better,” she says.

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