Sponsored by State Street.
GC: What was the rationale of merging a front-office technology specialist with a global custodian?
JP: Actionable asset intelligence, access to leading capabilities and liquidity are critical to growing profitability in a market that is characterised by growing cost pressures, complexity and competition.
The acquisition of Charles River Development (CRD) provides State Street with the opportunity to create an open and comprehensive platform connecting the front-, middle- and back-office. This platform will provide clients with the ability to manage all funds, products and asset classes on a single platform, while driving growth for both CRD and State Street.
GC: How can asset managers and asset owners achieve operational efficiencies with a front-to-back model?
JP: State Street AlphaSM redefines the common definition of ‘alpha’ to mean powering better performance and outcomes at every point on the investment lifecycle.
The Alpha platform harmonises data, technology and services across trusted providers to help clients better manage their businesses through increasing cost pressure, complexity and competition. This open community of providers allows flexibility and scale, differentiated capabilities, access to liquidity and real-time intelligence across multiple asset classes and diversified markets.
Through an integrated data model, our clients see a significant reduction in reconciliations, a greater opportunity to automate workflows and streamline operations, and the chance to eliminate disparate point solutions that require dedicated support teams.
GC: What benefits can a simplified operating model with a front-to-back provider bring for buy-side firms?
JP: Alpha sets industry standards for innovation and helps our clients make better investment decisions, improve operations and meet their clients’ objectives. With a unique breadth of capabilities that now includes the front-office, there is no need to manage and reconcile multiple versions of the truth. Rather, with an enterprise wide “single version of the truth”, clients have greater confidence in investment and risk management decisions.
For buy-side firms specifically, Alpha delivers real-time data for the full investment cycle and is completely open. There is also a holistic, firm-wide user experience (UX), which streamlines workflows and improves ability to leverage both internal and external data. New levels of automation, efficiency and transparency deliver the needed improvements to lower latency costs and time spent managing compliance. In turn, clients can boost collaboration both internally and with their choice of providers.
Do clients still have optionality in a front-to-back model? Can it be interoperable with other providers?
JP: Absolutely. State Street facilitates convening on a single platform, and interoperability with third-party application providers, data and analytics providers, and global liquidity venues.
- BestX – By normalising non-standardised FX market data, BestX® — our transaction cost analysis platform — helps traders architect and deploy FX strategies in a more targeted, cost-efficient way. It’s an integral feature of our front-to-back solution.
- MSCI – MSCI analytics will enable asset managers and hedge funds to generate timelier risk forecasts, construct more robust portfolios, and develop and manage smart beta and risk parity products on our platform.
- Axioma – In combination with our portfolio management, risk and attribution capabilities, Axioma’s factor models for equity, multi-asset and fixed income portfolios provide a single solution to help identify, measure and reduce risk.
- Tradeweb – seamlessly access global fixed income liquidity on Tradeweb directly from our order and execution management System (OEMS).
GC: What can the front-office achieve by using back-office data?
JP: The front office will have a more accurate and timely view into cash, allowing them to manage assets more effectively. The need to interact with other parts of investment operations is eliminated as data is exposed to the front-office. Efficiency and scale will be gained and by using back-office data, the front-office gains greater insight into global fund flows and better management of scarce collateral to support regulatory mandates on derivatives collateralisation.
GC: What new demands have you seen from clients that have taken on the front-to-back model?
JP: In terms of new demands, clients need assistance with re-engineering existing workflow to better leverage the combined front-to-back capabilities.
This includes the oversight of the processes they have outsourced as well as adding new services that are closer to the front-office. Expanding managed data services to allow clients to focus on the core has been a big part of new growth opportunities with our clients.
Clients who have taken on the front-to-back model have gained greater access to data across the investment process and seamless interoperability with their preferred third-party providers.
GC: Will a front-to-back model become the new norm in the securities services world?
JP: We believe it will. With margin compression driving more M&A between asset managers, a single platform helps to streamline technology consolidation at the merged entity.
Many niche technology solution providers have been acquired by firms looking to build out a broader offering. Similarly, large players have announced competing initiatives since the State Street-Charles River acquisition.
Since we announced our intention to acquire CRD in 2018 and became the first movers to deliver the first front-to-back platform, we have seen the industry – competitors and clients – move towards this positioning. In addition, we’ve seen our competitors make similar acquisitions or create partnerships that are squarely focused on providing parallel services.