Since early 2000, SimCorp has offered a front office solution, although it never really caught on outside of northern Europe. A lot of investments have been made into enhancing its offering, including multiple iteration of codes to get to a viable product. But development remained very siloed; there was a team for portfolio/asset management, one for orders, and another for compliance.
But what defines Front Office?
Front Office Redefined
In general Front Office is a multitude of solutions. A portfolio manager needs more than just an analytics tool; they also want to know where their exposure is, trades in the market, compliance issues, performance attribution, and risk factors. And the front office user needs to be able to interact with multiple aspects both instantly and in a dynamic, interactive way. Gone are the days of static screens and web-based dashboards.
The front office user has changed and is now younger, quant and tech-savy, having grown up with an iPhone in their hands. They want an experience where they can define their workflows. Flexibility in the front end does not equate flexibility in the code. It is essential to ensure that all functionality is there to stay ahead of the market which requires close connectivity with clients, with the market, and with the industry.
The switch to the cloud (SaaS) is a good reason to change the way clients interact with SimCorp Dimension, making it accessible via a web browser or an app, instead of having to go via Citrix. But there is a vital need to improve user operational efficiency and allow them to pick up any asset, trade it, and automatically hedge it seamlessly.
The basis for this already exists in the performance analytics which we looked closer at in an earlier SimCorp Review: Lightning-Fast Performance.
This aligns well with SimCorp’s change in strategy announced 5 years ago, going from a pure software company to a service company. Time has now come for the front office. SimCorp wants to be the enabler for their client’s investment decisions and a service provider that supports anything around front office so clients can focus on value creation, investment decisions, and their core business objectives.
SimCorp’s Front Office
When we look at SimCorp’s existing client base, SimCorp told us at their recent Capital Markets Day that more than 75% already use one or more modules from the Front Office suite. And over 20 clients are currently in the process of implementing even more of SimCorp's Front Office. Granted, this includes the Asset Manager and Performance Measurement, which is also used by non-front office users, but it is still a high number.
There are two parts SimCorp has natively covered from front to back:
The real time Investment Book of Records, also known as IBOR, which throughout modules provides real time positions, analytics, and exposure.
A broad Instrument coverage of public, private, liquid, illiquid, derivatives and alternatives natively embedded and represented.
Combining these allows for a precise view in real time, so when the market moves, users see the impact as it occurs. The exposure of analytics, performance attribution and the positions give you your exact cash number right now.
But what challenges do they face?
The most predominant is without a doubt North America. While front office has had an uptick the last 10 years in Europe and somewhat in Asia, it has significantly lacked behind in the US and Canada. In the past year SimCorp has worked with clients in that region to close some of the gaps, identifying through those engagements some nuances needed for this market. This work is still ongoing, but results are starting to show: in Q4 2022 alone, SimCorp signed 3 front office deals with clients in North America.
Another challenge is system performance when large volumes are in play. The weakest link is when processing multiple orders simultaneously, but also sum formulas in the Asset Manager and the new ESG solution face reduction in system responsiveness. Even though SimCorp has made several changes to the underlying architecture, it is still an area were improvements are necessary. We hope that the recent new signings will solve this issue that seems to persist.
A New Direction
Until now most development investments have gone into the underlying architecture which enables scale and volume. Focus has shifted to create more value-add for their clients by enabling them to beat their peers, providing quality insights and intelligence in real time to the platform. That means creating faster, smarter, actionable analytics that are fully interactive, allowing front office users to make decisions fast, act on them, and bring them to market quickly.
SimCorp has a clear plan to outperform their competitors. They have invested heavily in this area for years and according to SimCorp they believe they are close to being on par with companies such as Charles River and BlackRock. And the goal is to outperform them in the next couple of years.
To achieve this, there are a couple of areas SimCorp is focusing on. First is alternative investments. With 20% of alpha generation today coming from alternatives, continuing to grow this must be a top priority.
The other aspect is to leverage the cloud to its fullest potential by creating dynamic calculations on the fly for analytics, performance, risk etc. This saves time and data storage. SimCorp tells us that an Asset Manager with 80bn EUR in AUM has reduced their data storage by 62% in performance and their analytics by 90%.
The last part is ESG – Environmental, Social and Corporate Governance. Or rather data in general, from security master data to basic data, SimCorp is data agnostic. SimCorp is by design a fully integrated system sitting on one database which means that clients only need one data set stored and maintained once to be used throughout the organization, from front to back.
Turning to SimCorp’s ecosystem, the philosophy around building has also changed. Where SimCorp was a “Build-over-buy” 10 years ago, they have since shifted to a “buy-over-build” – when it makes practical sense. This is especially prevalent in front office, where only what is core is built. Where no good alternative exists and when sensible, they partner up with a niche software provider. This approach enables a faster time to market than before and leverages best-of-breed solutions through an open platform integration managed by SimCorp and their partners.
SimCorp currently has 58 partners that are integrated with SimCorp core, and where security is provided by SimCorp. The integration to these platforms is seamless to the end-users and is using APIs to connect. This is another area where SimCorp has had to open the platform to allow for a seamless integration with 3rd party software providers. The intention from SimCorp is that if a client is interested in a particular solution from a partner, they can try it out in their own environment and then decide if they want to buy it or drop it if it does not meet their expectations.
The Alternative Investments module is an example of this, where multiple partner integrations exist throughout the value chain making it more competitive than if SimCorp stood alone. The end users wouldn’t know that there is an underlying connection to 3rd party systems as they are integrated from the bottom up, not as an add-on. That means it was built through data ingestion, servicing, analytical generation, workflows, and then exposed to the FO users.
How mature is this?
It is an impressive partner list that SimCorp has built up in the last few years. As mentioned above, partner systems are integrated with SimCorp using API’s that SimCorp has developed. It is no secret that this technology is not widely used at SimCorp clients, and it will take some years before it reaches maturity.
Furthermore, if a customer is interested in a specific solution where SimCorp does not have a partnership, the platform is open so clients can themselves integrate through event-based APIs. That is, of course, provided SimCorp has developed an API for that piece of functionality in SimCorp; if not clients will face additional development.
So, while it may not be mature in all areas, there is a lot of attention being put into this from a development perspective, as well as from sales trying to get more clients onboard.
How achievable is this?
Perception is reality, especially in front office. They speak the loudest and get the latest and greatest tools and are used to best-of-breed systems. If SimCorp could succeed in turning the perception around and become the new Tesla, they would … but is that even realistic?
The Order Manager OMS in SimCorp is the weakest link in this setup, and SimCorp is the first to acknowledge this. They have made big strides to eliminate the gaps, but there is still a way to go to be a match with the competition.
There is no doubt they must get it right in North America, be able to handle large volumes, eliminate system performance issues, and provide more insights in the analytics.
If you are considering SimCorp’s Front Office and want to learn more from an independent entity, let us know. You can setup a call with the author Ebbe using this link.