One Quarter of Global Investment Management Firms Rely on Outdated Technology: Firms and Investor Returns at Risk
SimCorp StrategyLab report draws conclusions from interviews with over 500 investment managers worldwide and more than 100 sources of industry research
SimCorp StrategyLab, a private research institution sponsored by SimCorp, today released a new study titled, “Legacy Systems: The inconvenient truth and the cost of doing nothing.” Based on interviews with over 500 buy-side institutions across the globe and research from more than 100 industry sources, the paper highlights the serious consequences of relying on legacy systems.
The report states that one in four buy-side firms worldwide run core business operations on legacy systems. Given that the top 2,000 firms collectively manage upwards of US$80 trillion in assets, more than the 2012 global gross domestic product (GDP), trillions of dollars are at the mercy of outdated technology.
According to Ingo Walter, President of SimCorp StrategyLab and Professor at the Stern School of Business, New York University, “The financial crisis of 2008 was attributed in large part to opaque instruments, toxic mortgages and the breakdown in corporate governance. However, there has been a lack of insight into the role that technology systems played in accounting for why executives were not able to access the most basic information on the state of their businesses in order to take corrective action. Neither has there been an analysis as to why some firms were better able than others to understand their counterparty exposure and mitigate the losses resulting from the collapse of Lehman Brothers and Bear Sterns.”
Among the industry sources cited in the 40-page study is the MF Global trustee’s report presented by Louis J. Freeh, former director of the U.S. Federal Bureau of Investigation. The Freeh report alludes to system deficiencies leading to MF Global’s “inability to forecast and track financial information accurately on a real-time basis resulting in executive management reacting too late and too slowly to the growing liquidity pressures placed on the company by the Euro RTMs and new trading desks.”
A CEB TowerGroup report cited in the paper explains: “Replacing legacy systems will soon become a fundamental requirement for FSIs seeking to retain or regain marketplace leadership.”*
The SimCorp StrategyLab study defines ‘legacy’ systems as those that:
- Have difficulty providing a real-time consolidated overview of positions and holdings and;
- Often run on outdated, poorly documented or obscure technologies and;
- Are infrequently updated and;
- Have difficulty in automating or adapting to business processes.
More than 100 primary research sources were consulted in the construct of this SimCorp StrategyLab meta-study. Sources include: Ovum, Aite Group, CEB TowerGroup, Celent, Ernst & Young, Deloitte Consulting and Harvard Business Review.
For further details, please download the full report here.
*Source: “Sourcing, Resourcing, or Outsourcing: Globalizing Operations in Financial Services by 2015,” CEB TowerGroup, July 2011.
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SimCorp StrategyLab
SimCorp’s independent research institution, SimCorp StrategyLab, carries out extensive research in the investment management industry to identify and suggest ways to meet challenges within risk management, cost control and growth opportunities and to share best practices. The research program is carried out in close collaboration with internationally recognized academics and established industry experts. Learn more about SimCorp StrategyLab at: www.simcorpstrategylab.com.
About SimCorp
Since 1971, SimCorp has been providing investment and portfolio management solutions and services to the world’s leading investment managers, asset managers, fund managers, fund administrators, pension funds, insurance funds and wealth managers. SimCorp’s world-class software provides global financial organisations with the tools they need to mitigate risk, reduce cost and enable growth. SimCorp is a global company, regionally covering all of Europe, North America and Asia Pacific. Listed on the NASDAQ OMX Copenhagen, SimCorp is dedicated to supporting the global investment management industry, its clients and its investors. For more information about SimCorp’s products, please visit www.simcorp.com/product.
Enquiries regarding this announcement should be addressed to:
Lars Falkenberg, Assistant Director, SimCorp StrategyLab (+45 35 44 88 00)