Charity Financials Article

Earlier this month we wrote an article for the November edition of Charity Financials that analysed whether the relative size of charities within the Teknometry / CIG charity Fund Universe had any correlation with the returns they achieved.

In summary it was found that large charities performed better than their peers in positive markets but conversely performed poorer when returns were declining.

The full article can be found on the Charity Financials website here, or you can download a PDF copy here.

The last hurdle for cloud-based software?

It is no secret that the costs of cloud-based software applications have reduced considerably over recent years. Furthermore, developments in cloud service provider security are starting to allay the concerns of investment technology heads and regulators to the extent that cloud solutions now present a powerful message that in these harsh economic times can no longer be ignored writes Mick Brant, CEO of Teknometry.

Despite major advances in recent years, fears over cloud-based performance measurement and other applications persist. Even some Heads of Technology at major institutions quake at the mere mention of the ‘c-word’. How much of this fear is generated by a lack of understanding, ‘empire protection’ or genuine concerns is difficult to estimate. Yet the impact of moving applications to the cloud on the total cost of ownership is immense, in terms of the reduction in licence fees, hardware costs and operating costs such as administration, back up and other housekeeping functions.

Cutting costs and gaining operational efficiencies
For example, a recent CEB TowerGroup report cited increasing worries around meeting performance and returns objectives. Asset managers face intensifying pressures on pricing, shifting investor preferences, regulatory burdens and an increasingly sophisticated fund landscape. By shifting their technology deployments to the cloud, CEB TowerGroup believes that firms will cut costs and gain operational efficiencies. It also believes that the industry will increasingly favour an integrated analytics platform over discrete applications for performance, attribution, risk, and investment decision support.

For example, today’s cloud-based performance applications provide sophisticated query and visualisation tools to monitor and analyse performance, attribution and risk on an integrated platform. Additionally, in a multi-tenanted format, cloud-based analytics solutions offer rapid deployment and subsequent upgrades while maintaining customer isolation. These solutions are often also able to utilise existing data sources and workflows with very little procedural change, to facilitate migration measured in weeks, rather than months.

Sharing of resources
Furthermore, cloud-based software can allow resources to be shared across the platform by employing resource-scheduling technology that scales dynamically as clients sign on to their own secure realm. This can facilitate a ‘Pay As You Grow’ pricing model based on volumes and the services used, rather than a traditional software licence model, making the service attractive to a broader range of investment organisations.

The key is a secure and flexible cloud platform that offers resource allocation services that the service provider can leverage in the application architecture to allow the dynamic allocation of processing and storage resources based on the number of active users and tasks. A good example is Microsoft’s Azure cloud service, which also offers software providers other benefits such as in-built geo-replication of data and switching in the event of failure. This type of capability has attracted a great number of niche software providers to the investment management industry for good reason: the technology costs are minimal compared to on-site installations.

Security remains a question mark
Security, whether in the cloud or on-site, is always a concern for investment management firms. Contractual and regulatory obligations place a duty of care in relation to client data and security, control, access and auditability have been considered much easier to manage in an on-site installation. Cloud service providers have responded by improving security, and engaging with the regulators to better understand and address these issues.

For example, Azure‘s geographically dispersed data centres comply with key industry-standard procedures for security and resilience, which are independently audited. In addition, many cloud-based applications have an additional layer of security and the providers will regularly have their own vulnerability tests carried out.

Private cloud, where companies offer remote services to their clients via their own data centres, is commonplace in large financial institutions. The rationale is that you get all the scalability and metering benefits of a public cloud service without ceding control and security to a service provider.

However, this can be a costly solution as it is unlikely to attract the economies of scale that the global cloud providers can offer or the cost saving from dynamic resource allocation. There are also no guarantees that a private cloud installation will be any more secure, as high profile security breaches at companies such as Sony have highlighted.

More and more investment management firms are looking at cloud technology to achieve scale, cut costs and improve time to market. While many industry professionals would agree that cloud computing is gaining traction in investment management firms, there is still much debate as to whether it will ever be wholeheartedly embraced. Yet if security is the final hurdle and investment management margins remain under pressure, few would argue with the fact that cloud technology now presents a compelling proposition for investment firms, leaving no doubt that cloud-based applications are here to stay.

The above article first appeared in Global Banking & Finance Review on 12th January 2014.

Getting a better handle on investment performance through the cloud

Setting a stage for the performance: how wealth managers can achieve business advantage through cloud-based performance software.

With increasing client concern over investment strategy and rising levels of due diligence, wealth managers need to be continually monitoring performance at client, portfolio and even holding level. Yet the cost of traditional installed performance and attribution applications for many small and medium-sized firms is prohibitively expensive, running into hundreds of thousands of pounds for implementation costs alone. With cloud-based systems, there is now a cost effective method for providing this assurance to investors, writes Mick Brant, MD of Teknometry.

Responding to more demanding investors
The problem for investors is that there is no accepted standard for performance reporting among wealth managers and some firms have been getting away with the bare minimum for a long time. The financial crisis changed all of that forever and clients are now becoming far more demanding in terms of their understanding of their portfolios’ performance and risk. Some commentators suggest that investors are demanding real-time mobile apps and while I am sure that this is true for a small proportion, I am not convinced that this need is commonplace.

What I am certain of, however, is that investors are asking for more detail on how their portfolio is performing, where that performance has come from (‘attribution’) and how the risk is being managed. This is particularly the case in the UHNW market, where the managers have discretionary portfolios, as opposed to the high-end IFA that only has a small number of holdings in several unitised vehicles.

Cloud providing an opportunity for smaller firms
Despite this growing need for detailed performance figures, cost is still a major factor for wealth managers when it comes to IT spend. For a firm managing five hundred portfolios, requiring full performance and attribution functionality (particularly where that functionality requires multiple attribution models), the COO could be looking hundreds of thousand pounds in licence fees alone. In addition, there can be significant upfront implementation costs and ongoing operational running costs.

On the other hand, cloud technology enables the wealth manager access to this capability on a service, pay-as-you-go, per portfolio basis, where the annual charge for a portfolio is as low as a few hundred pounds. Many wealth managers currently pay that amount for a WebEx facility without a second thought.

The cost of cloud-based performance solutions is service and volume based, so adding more users may not increase the running cost – creating an opportunity to provide wider internal, or even external, access to performance analysis tools, dashboards and reports.

Improving the monitoring of investment strategies
Forward-thinking wealth managers are also deriving other business benefits from cloud-based performance systems. One such advantage is the ability to enable the front office to see the impact that their transactions have had on performance, using the same tools across the front to back office by providing different views of the portfolios they manage.

The front office requirement is different to client reporting: whereas client reporting is more concerned with periodic, investment book of records (IBOR) style of analysis, the front office wants to know if a particular investment strategy is working – almost in real-time, not just at the end of the reporting period. If the firm can supply the trading data in a timely fashion then the front office can have access to performance and risk analysis based on portfolios, strategies or indeed any other breakdown. Any concerns about performance information being based on unreconciled accounting and trading data can be mitigated by using query tools that can distinguish between this data and locked data.

The net result is that the portfolio manager can keep tabs on how his strategy is delivering, without having to wait weeks for reporting information or maintaining their own book in spreadsheets.

Operational risk that you can now afford to avoid
Smaller wealth managers that don’t have the budget to spend significant sums on a performance system often have relatively small holdings and limited numbers of portfolios. These firms may argue that they can handle the performance measurement function themselves, through the manual manipulation of a multitude of spreadsheets or internally developed applications. The problem with this theory is that there is a significant cost of maintenance. When even a relatively minor change is made, that change has to cascade through multiple spreadsheets or applications – taking valuable time and increasing the likelihood of human error.

Another consideration for wealth managers is the operational risk associated with having one or two individuals that know the spreadsheets and applications. Staff leaving can result in the firm having a mission critical application grinding to a halt. Now, when you compare those risks against a high-end installed platform, it is easier to convince yourself that those risks are worth bearing. When you compare it to a low cost, constantly updated, secure piece of technology with multiple users that is being constantly developed and maintained, it’s a risk that is harder to justify.

Setting the scene
Offering timely, detailed information to investors; improving the monitoring of investment strategies; and the reduction of operational risk provides cloud-based performance measurement systems with a compelling business case, one that is attracting the attention of large established wealth managers and small boutiques alike. The stage is set for those firms looking for a new source of competitive advantage.

The above article first appeared in WealthBriefing on 15th August 2013