Survey confirms IT trends

LONDON – Research published by Investit Intelligence, confirms that UK-based investment managers have OTC derivatives, client services reporting, Mifid, and expanding their product range, at the top of their IT and operational agendas. The research was gleaned from Investit Intelligence’s Summer Conference in mid-July, attended by 69 buy-side personnel comprising UK investment managers and third-party administrators.

While the report does not divulge details regarding which aspects of the above-mentioned areas respondents were most keen to address, a cursory ‘read between the lines’, is telling; traditional asset managers are continuing to pile into the OTC derivatives market in a big way, as traditional sources of alpha remain in the doldrums. But trading new asset classes is not as simple as tweaking existing IT infrastructures. Pricing and risk management software is especially important (and costly) in this market, and equally crucial are the appropriate market data feeds, independent pricing feeds and post-trade processing capabilities. Not surprisingly, 89% of respondents listed the OTC derivatives market as an area of interest or IT spending for 2006-2007. Client service improvements followed closely (86%), again unsurprisingly, given the increased levels of scrutiny shown by investors and regulators into this aspect of the business.

Addressing Mifid issues rounded out the top three, but more telling than the 83% eyeing the Mifid compliance deadline of November 2007, is the 0% who felt they had this aspect of the business ‘sorted’. At present, one of the only certainties associated with Mifid is that it appears to be less of a ‘box ticking’ exercise and more of a work-in-progress type issue. What exactly constitutes ‘best execution’ and how buy-side firms should go about measuring best execution and proving that best execution guidelines were adhered to, are still to be finalised. Investit reports that respondents requested more research on the following three issues:

• OTC derivatives: the impact they have on every department within buy-side organisations

• Core versus value-added services: what does your custodian focus on?

• Pooled funds: the pros of taking the pooled funds route and the perceived economies of scale