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Microeconomics 101 tells us that profit-seeking enterprises do best the more their revenue exceeds their costs. So it’s hardly revelatory to hear when companies are “doing more with less”, as this quest has existed since the dawn of private enterprise.
But to be sure, there are different levels of doing more with less. And from all indications, buy-side investment managers are trying to take it to another level.
Jesse Forster, Senior Analyst, Market Structure & Technology at Coalition Greenwich, discussed buy-side priorities, challenges and opportunities at SIFMA’s Equity Market Structure Conference, which was held Nov. 2 in New York.
Forster said investment firms have a two-pronged push in the currently tough environment: one, competition for growth, assets and clients, which often requires looking abroad; and two, an intense focus on cost management and rationalization.
“The buy side isn’t cutting tech budgets, but they are reallocating for efficiency and doing more with less,” Forster said.
Broadly speaking, investment managers have stepped up their cost management in two specific periods in recent years. One obvious belt-tightening period was during and after the global financial crisis of 2008-2009. More recently Forster said the past three to four years have prompted a new drive for efficiency, as the COVID-19 pandemic and its aftermath “has shaken Wall Street out of its way of thinking that everybody has to spend all day, every day at their desks.”
Hurdles standing in the way of the buy side meeting its efficiency goals include talent acquisition and management – which is driving interest in outsourced trading – and rising costs.
Deloitte surveyed the buy-side landscape in its 2024 Investment Management Outlook: Winning in Tomorrow’s World with the Lessons of Today.
“The investment management industry faced a tough year in 2022,” Deloitte noted. “In addition to margin pressures, high inflation, rising interest rates, instability in the geopolitical environment, and supply chain issues, 2022 was one of the few years since the late 1990s during which the bond and equity markets were simultaneously bearish.”
Deloitte stressed the need for firms to keep driving on efficiency. “Firms will likely have to find a way to invest in technology improvement even amid weak performance and margin pressures,” the report stated. “Without the right technologies and matching processes and controls, investment managers could fall short of client expectations and internal efficiency goals. The state of technological development supports how and how well the vision and strategies are executed.
As investment firms expand into more markets, cross-regional trading becomes more of a consideration. According to a recent Coalition Greenwich buy-side survey, the biggest “pain points” related to cross-regional trading are operational, including mid- and back-office settlement issues, followed by the need for local color around markets and trade orders, and the need for insights into local market structure nuance.
For technology that addresses trading and workflows, the most important factors are ease of use, reliability, and high-quality support. Critical non-execution attributes of cross-regional trading partners are operational reliability, support, and efficiency.
