No platform is an island in the complex, multi-vendor world of investment management. All buy-side platforms must interact effectively and continuously to mitigate the risk of business-critical interruptions, keep the lights on, optimize client experience, and maintain competitive advantage.  

Efficient investment management operations rely on timely and proficient maintenance of numerous seemingly innocuous connections – the glue that binds technologies together. In this article we explain why the scale of connectivity is escalating. We explore the connectivity challenges investment managers are facing and highlight ways for investment managers to overcome them.  

Why does connectivity management matter?  

The front-to-back sector is dominated by several buy-side technology vendors and platforms (notably Charles River Development, BlackRock Aladdin, Eagle Investment Systems, and SimCorp Dimension). The solutions they provide to facilitate portfolio management, data management, investment accounting, performance measurement, client reporting, and risk analytics sit within complex, ever-changing multi-vendor environments.  

New instruments are added regularly to keep pace with competitors, and front-to-back integrations are becoming more intricate. Core applications need regular updates. Many firms need to integrate with innovative new FinTech solutions or are moving to the Cloud “as-a-Service” in an open ecosystem. These trends are increasing the extent of connectivity and frequency of updates required.  

Connectivity management operates under the radar within most investment management firms – until things go wrong.   

• Imagine a breakdown in connectivity between your trading platform or any other critical system required to execute trades in a timely manner – your CTM (Central Trade Manager) or SWIFT, for example. No trades could be executed until the connectivity was fixed.   
• Consider the repercussions of making trades that are based on inaccurate numbers or are costly to execute, or generating reports that are missing transactions.   
• What if poorly functioning connectivity prevents you from meeting a regulatory requirement to shorten the securities settlement cycle from T+2 to T+1? At best, your firm is at a competitive disadvantage; at worst, you could breach compliance, incur fines, or risk reputational damage.   

Why is connectivity management so difficult to get right?  

For most investment management firms, connectivity management has become a costly and inefficient process, with the potential to impact the bottom line through poor customer service, low retention, inadequate security, and tarnished reputation.   

The most challenging aspects are:   

• Incremental complexity of aging technology.  Based on the laws of Technology Evolution, the spaghetti ‘hairball,’ coupled with aging technology, creates a perfect storm of increased technology risk, technical debt, and obsolete human capital. Over time, as firms continue to layer on bespoke applications and customize their vendor platforms, the resulting front-to-back integration model becomes very difficult to maintain (with AKA APL, Cobol, embedded code, and Excel monsters hiding in the closet). This creates huge risk and dependency on obsolete and aging key-person skills.   
• Availability of talent. Connectivity management is rarely a full-time job. It is subject to ad hoc peaks and troughs of activity governed by the need to add, remove or fix connectivity. When the need arises, or when colleagues need cover, a suitably qualified consultant or support staff may not be immediately available. People drafted in temporarily to fill connectivity management gaps often lack training. They may have little knowledge of the systems they are working on or any understanding of the reasons why they were set up in a particular way. This often results in sub-standard deliverables. And, while ongoing maintenance is also required, it rarely happens. Because connectivity management consultants and support staff also work on more visible, high-priority business-critical projects, they have little time for “routine” maintenance.   
• Accelerating talent drain. The connectivity management talent pool is shrinking. Front-to-back investment management systems typically remain in place for 12 or more years before review or refresh, and many firms still operate decades-old platforms. With staff retirement comes loss of knowledge. And, while vital to the business, these systems are considered less “sexy” to work on than other more modern emerging technologies. Combining this with the fact that self-employment is increasingly attractive for connectivity management specialists – lured by the highly inflated fees they can command – staff turnover rates are unusually high.  
• Diminishing knowledge and skill sets. When connectivity management skills are used only occasionally, and there are significant intervals between tasks, the work takes longer to complete and can lack quality. The temptation is to execute quick fixes, so support staff and consultants can return to other projects sooner. They may never have implemented a particular connection before, so do the best job possible given their lack of expertise and experience. This is a far cry from the best practice expectations of senior consultants, whose focus is on maximizing the efficiency and resilience of investment operations. Ideally, continual retraining and upskilling is required to sustain proficiency. In reality, this rarely happens.   
• Escalating costs. The time and expense of recruiting, onboarding, and training new connectivity management staff – especially given growing attrition rates – has become a significant cost. The shrinking talent pool, combined with salary competition from large tech firms, has also impacted the desire of many firms to secure internal hires. Instead, the trend towards ad hoc hiring of temporary staff at local level has risen. However, the cost of hiring suitable talent with grossly inflated fees, at short notice to plug resourcing gaps, and for a short period of time, has also escalated. And even for those willing to take the hit on costs, availability of suitably qualified resources remains an issue.  

All these factors pose significant operational and reputational risks for every investment management firm.    

How are investment managers solving these challenges?  

Increasingly, investment managers are turning to Managed Services to address scarcity of resources and rising costs. At Elgin White we have seen significant interest in and demand for this approach, known as “CaaS” (Connectivity-as-a-Service).   

CaaS is a more efficient and cost-effective approach to connectivity management. It solves most, if not all the challenges discussed. There is no need to relinquish full control by outsourcing your entire support function and there are a multitude of benefits:  

• Resource availability. Consultants working full-time within CaaS environments are connectivity management specialists, with expertise in both modern and legacy technologies, so you are never at risk of skills shortage. Look for a service that provides resourcing on-site or remotely, during daytime or out-of-hours, to suit your requirements.  
• Short time-to-value. Projects kick off as soon as the ink dries on the paperwork, saving both time and cost. Dedicated CaaS consultants operate in a more agile and professional way, so they can adapt quickly and efficiently to new or changing requirements, especially when timing is critical. Look for a Managed Service with a solid track record of understanding client needs and rapid onboarding.  
• Cost-effective. With CaaS, you pay for what you need. You can start small with a couple of connections, then grow over time, so you are always future-ready. In addition to eradicating recruitment and (re)training costs, and dependency on internal skill sets, integrations are completed in a significantly shorter timescale, saving both time and cost.  
   
  CaaS subscriptions typically feature a predictable monthly spend, with ad hoc work charged additionally based on transparent and affordable tariffs. Usually, investment managers sign up for a monthly flat fee, enabling them to spread monthly costs, forecast future spending, and budget more accurately.   
• Risk reduction and assurance. With CaaS, the risk of talent drain and inadequate resourcing is eliminated. Investment managers know that new integrations will be managed by consultants and support staff who are motivated and equipped to act quickly and efficiently. They also adopt a more proactive approach, thereby eliminating the firefighting associated with current ways of working.   
• Continuous support. CaaS providers ensure ongoing support, avoiding an accumulation of connectivity management issues over time, thereby minimizing the likelihood of system failure in the future. Look for a Managed Service that can draft in highly skilled resources, whenever required.  
• One-stop-shop. Managing one CaaS supplier relationship that spans multiple buy-side technology vendors saves time, effort, and cost. Although some vendors offer interfacing support for their own solutions, which can be appealing for some investment managers, none offer multi-vendor support. Working with one Managed Service provider across all vendors is less onerous and more cost-effective.  
• Best practice operations. CaaS consultants manage connectivity between multiple vendors every day, for different investment management firms. They apply their cross-sector experience to deliver the best possible outcome for your firm, in the shortest possible timescale.  
• Efficient global rollouts. New initiatives requiring enterprise-wide connectivity – the migration from Swift MT to MX, for example – are deployed by CaaS providers in a safe, secure, and robust manner, in a fraction of the time it would take inexperienced part-time staff to accomplish.   

The connectivity management status quo has been dysfunctional for many years. The emergence of CaaS has been welcomed by investment managers seeking a better way of working day-to-day. Those who have embraced CaaS have found a more robust, reliable, and resilient way to ensure operational efficiency and mitigate risk into the future. 

Elgin White is an experienced provider of CaaS Managed Services for investment management firms. For more information contact us here.