By Neil Vernon
The proposed acquisition of Swiss fund house GAM by Liontrust comes after a series of major mergers, writes Neil Vernon
The internal composition of a large fund manager in 2023, compared with 20 years ago, is radically different. Revenue generation strategies are far more complex, and their global footprints have grown exponentially. While this has driven major gains for the front office, there has been a significant knock-on-effect on the volume and variety of activities falling on the shoulders of those beavering away in the back-office. The plethora of different assets that are being invested in by many large-scale asset managers are, more often than not, reflected in a complex spiderweb of different internal systems that hold the whole operation together.
Built into this spiderweb are old, faltering strands that simply cannot be relied upon to uphold the integrity of the internal infrastructure. Many firms are still reliant on legacy technology that has been installed for decades, with layer upon layer of slight “tweaks” and “improvements” being made over the years. On top of this, for global businesses, there is often a striking lack of harmonisation across the middle and back-offices – both jurisdictions and departments.
At the time that these systems were set up, it made more sense. The environment was very different then, there was a distinct lack of vendors, and it was a very different data environment. But this simply isn’t reflective of the current reality. Fintech founders and their teams learnt their trade from the very side they are trying to help – having experienced the frustrations that legacy systems can cause themselves.
2023 is a year that is being punctuated by major mergers, such as the recently announced Rathbones/Investec deal in the private wealth space, and now, the proposed acquisition of Swiss fund house GAM by Liontrust. Deals of this size and complexity will need to be supported by long-term integration and consolidation projects.
It’s an especially challenging time for fintech firms who might fill this gap between closing the deal and actually merging. Just imagine if you will, the unbelievable confusion that can come with merging companies that have two sets of back offices, each layered with so many different overlapping legacy systems. The effect of this on operational efficiency is staggering, and the period immediately post-merger is where financial institutions need to be able to rely on modern technology solutions in order to harmonise and stabilise their core processes.
But for those firms who can focus their efforts on a part of business which is perhaps less glitzy than creating the best new banking app, the rewards will be rich.
This is all set against a backdrop of an era where data is being consumed at levels not seen before. With various areas of the middle and back-office relying on different tech, it is easy for essential information to be caught up in the web of legacy systems which greatly affects operational efficiency.
Just as you wouldn’t build your own oil refinery, it doesn’t make sense for asset managers to take the load of complete system overhauls onto their own backs.
The operational headache that comes with reliance on outdated systems is well understood by the middle and back-offices, and the potential for it to become a long-term migraine in the form of an extended integration project is clear.
Giving this headache to a managed service provider, someone whose business it is to live and breathe post-trade, is the way out of that spiderweb of complexity. That is why, when it comes to major M&A deals, the buy-side needs to be able to rely on market expertise alongside modern tech in order to ensure efficient and effective integration.
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