Achieving front-to-back interoperability between systems and platforms can be a challenging task. But as interoperability becomes more of a buy-side necessity, vendor firms are turning to each other to provide a more consolidated experience for their clients.

One example is State Street and FactSet’s most recent partnership. The two companies have jointly announced they are integrating State Street’s front-to-back platform Alpha with FactSet to streamline data flows across the front-, middle- and back-office through State Street’s Alpha Data Platform (ADP).

Christopher Ellis, global head of strategic initiatives at FactSet, who has been with the company since 1994, tells WatersTechnology that clients are demanding that they have a “deeper relationship” with fewer partners and that those remaining partners work together.

So about a year ago, FactSet and State Street set out to understand how they could collaborate to essentially make life easier for their common clients.

“We met with 15 key clients globally last summer and asked them what they would want State Street and FactSet to do to help and be consistent with that theme,” Ellis says.

These clients were FactSet and State Street’s largest asset owners and asset management firms. According to Ellis, the result of those meetings came down to four pillars, which stretch the scope of what a typical partnership looks like. “I’ve never worked on a partnership that is this broad in scope,” he says.

Two of these pillars are primarily data coming from the State Street Alpha ecosystem into FactSet, and the remaining two are data coming from FactSet into State Street. So, for example, State Street portfolio accounting data will be integrated into FactSet’s performance attribution, risk, and reporting capabilities, while portfolio analytics from FactSet will be integrated into State Street’s ADP. Additionally, portfolios in FactSet will update intra-day as trades are executed and allocated in Charles River, while proposed trades in FactSet transfer to Charles River for compliance and order management.

A pain point that asset managers grapple with is the lack of integration across their back-, middle-, and front-office operations, says Benjamin Quinlan, CEO and managing partner at Hong Kong-based strategic consulting firm Quinlan and Associates.

In an increasingly data-driven landscape, dealing with siloed data across different business areas makes it harder for firms to derive meaningful insights.

“The streamlining of data flows can help create a dependable source of ground truth for the buy side to leverage in a bid to gain a deeper understanding of their customers, enabling asset managers to turn those added insights into a more enriching customer experience to win over a greater proportion of heart share and wallet share,” he says.

The partnership between State Street and FactSet, Quinlan says, allows State Street to provide its clients with access to aggregated data, analytics, and real-time insights. “This not only translates to a better customer experience, giving State Street a competitive edge over its peers, but also allows the asset manager to collect data on how customers are interacting with its offerings. That treasure trove of data can create a positive feedback loop of incremental improvements,” he says.

Come together

The core of the partnership is ADP, which acts as the integration point between FactSet and State Street, says Bruce Feibel, platform manager for State Street’s Alpha platform.

“What we’ve done with FactSet at the bottom level of this is align our data model. So the data coming out of State Street’s portfolio, accounting, and valuation services is aligned to what FactSet needs to ingest in order to help our clients construct and analyze portfolios, and also get the data back into the ADP for integration with other datasets that are required to report to their end clients,” Feibel says.

Doing this manually creates challenges for asset managers, he adds.

“An example of that is performance attribution. It’s a pretty heavy lift to feed that process with the right data so that investment professionals can understand their portfolios with accurate data. State Street Alpha is the provider of the portfolio information—what do we own, what’s it worth, and so on. Aligning those data models so that these capabilities work together is what this partnership is about; we want to analyze portfolios using FactSet’s capabilities, but provide the integrated data from the ADP.”

FactSet’s standard datafeeds—including fundamental data, ESG data, estimate data, and so on—can flow into State Street’s ecosystem for the user to use anywhere they choose.

“The beauty of ADP is that we’re not connecting to [State Street’s] TruView accounting platform, and we’re not connecting to Charles River. We’re connecting to ADP, and the State Street folks have built all of the interconnectivity from TruView to ADP and from CRD to ADP, so FactSet is just interacting with ADP,” says Ellis.

The Snowflake connection

The ADP was built on Snowflake and Microsoft Azure, while FactSet has its own integrations with Snowflake. Ellis says this allows FactSet to push data into ADP through a Snowflake pipe, and then State Street can take that data and push it anywhere clients need it on the State Street ecosystem.

Attribution results, risk analytics, portfolio characteristics, complex weights composition numbers that are core to FactSet’s performance, risk, and reporting capabilities, have a similar pipe into ADP.

Ellis notes that it’s the clients’ data, and not FactSet’s data that is going through those pipes. “We’re making it easy for them to distribute and push it anywhere they want,” says Ellis.

Feibel adds that while Snowflake certainly makes it easier than in the past to do these kinds of data exchanges by aligning State Street and FactSet’s data models and their systems can communicate together so as to make updates in real-time, “that’s a unique capability to State Street Alpha and FactSet working together that’s very difficult for any client we have in common to do on their own.”

Front-to-back & bottom-up

State Street has been at work on its front-to-back platform for a while now. With its integration with Charles River Development, State Street can streamline workflows from where trades are made to trade confirmation, settlement, and security servicing, and then provide information back to the front office for trading, portfolio management, client reporting, and other functions.

But State Street isn’t alone in seeking that front-to-back play. Last year, Broadridge acquired Itiviti to help firms simplify their front-to-back technology stack.

Cubillas Ding, research director for capital markets and investment management at research and advisory firm Celent, says the front-to-back streamlining trends in the past few years focused mainly on the “portfolio implementation” aspects of investment operations, such as order generation, trade execution, margining, risk management, accounting, and other post-trade functions to achieve transaction settlement.

However, that is changing, he says.

“With initiatives like FactSet and State Street Alpha, you are now seeing spheres of operational and data convergence expanded to ensure that the ‘thinking’ aspects of the investment lifecycle—portfolio design and blueprinting activities, which include investment research, ideation, goal planning/target setting, asset allocation, strategy formulation, and top-down portfolio construction—are further aligned with the bottom-up implementation activities when orders/trades are being executed.”

This, in turn, will help asset managers achieve differentiated benefits, such as faster onboarding of new datasets, more compressed time-to-decision insights, and more dynamic portfolio design capabilities.

“The platform is only valuable to the extent that we’re open to be able to bring the data in and to feed those capabilities as they need to be fed so that our clients can use them.”

Bruce Feibel, State Street Alpha

Achieving true front-to-back integration and interoperability, though, is easier said than done. Feibel says it can be challenging to standardize and streamline workflows across disparate activities. “The typical client that we’ve been able to serve with the platform is looking to rationalize, consolidate, and to create a platform that has secured their own growth, whether that’s adding new asset classes, or incorporating acquisitions,” he says.

To that point, Ellis adds that FactSet and State Street have connected their technical teams to build the plumbing between the two systems. He acknowledges that no matter how perfect the plumbing, there will still be some leakages. So, what they’ve done is taken the teams that handle the data scrubbing and the data follow-through and connected those teams and worked on the cadence of how they’re going to work together so any unforeseen issues will not fall back on the client.

“This is so problems don’t fall through to the client, and State Street and FactSet don’t point at each other and say, ‘I don’t know, it’s them.’ Integration can be hard, and that’s where it tends to break down, so we’ve worked on both that macro level with the plumbing and the micro level with the people to pick it up when there’s a leak,” he says.

Interoperability is one of the fundamental tenets of the ADP, Feibel adds. He says, in the envisioning of State Street Alpha, the firm knew Alpha would only succeed if it could incorporate various sources of data and capabilities that firms like FactSet provide to State Street’s clients.

“The platform is only valuable to the extent that we’re open to being able to bring the data in and to feed those capabilities as they need to be fed so that our clients can use them,” he says.

This continued push towards interoperability and data integration may lead to a mindset shift on the part of vendors, from breadth- to depth-focused, that is, developing deeper relationships with a smaller set of clients, as opposed to shallow ones with a longer client list, says Quinlan.

“To that end, vendors will have to show that they have a deep enough understanding of not just their client’s needs and pain points in the present, but also of the direction that the client is aspiring towards, and consequently that the vendor can continue to support them on their quest in the long-run. As such, we may see a shift from short-term transactional thinking to more a long-term journey-oriented stance being adopted by vendors, as they look to form stickier relationships with an elongated lifecycle,” says Quinlan.

“Those vendors that are successful in forming these deep relationships can emerge as the big winners from the consolidation that may play out.”