SimCorp makes push into managed services

Investment firms are seeking to outsource more of their back-office functions to buy-side service providers. Investment management solutions provider SimCorp, which has always positioned itself as a pure technology vendor, is now also offering managed services to cater to this transition. 

Jochen Mueller, executive vice president and chief commercial officer at SimCorp, says asset managers are demanding more from their third parties in areas like accounting, expecting vendors to take more accountability for processes and outputs. 

“Investment firms can buy accounting software, but they are still responsible and accountable for delivering the right outcomes. What we see is that more customers ask the technology provider to commit to those outcomes,” Mueller says.

SimCorp began planning the move to managed services almost two years ago. Mueller says the Copenhagen-based vendor decided to roll out investment-accounting-as-a-service (IAaaS) due to demand from clients seeking to outsource parts of their back office.

Mueller says SimCorp’s accounting solution can automate 95% to 99% of investment accounting functions. But, he adds, the final 1% to 5%, which usually involves oversight of the technology itself, is what clients are asking to outsource.

“The technology provider, through providing automation more and more, understands the business processes and is the natural partner in this. The reason we decided to provide this as a service is that clients have said, ‘You are already doing most of that, you understand more of these processes than we do because you create the technology; why aren’t you taking the last step?’” he says.

SimCorp’s IAaaS service, which covers all asset classes, will cleanse post-trade data using its Datacare platform, perform data reconciliations, ensure international accounting standards are met, and manage accounting records on behalf of clients. 

SimCorp conducted a market survey to evaluate the demand for accounting services. The research got responses from 46 buy-side firms, of which 29 were existing SimCorp Dimension clients, and the other 17 were sales prospects. Sixty percent of respondents had assets under management (AUM) of between $20 billion and $100 billion. The study showed that nearly 57% of respondents currently used managed services within investment operations and accounting, and almost 60% see the move to managed services providers and technology companies increasing.

“Clients don’t want to consume technology as they did in the past. They want you to take the full set of steps, take the accounting process and provide them with the insurance reports, so now that’s what we’re doing,” Mueller says.

Jay Wolstenholme, research director at consultancy Chartis Research, owned by WatersTechnology’s parent company Infopro Digital, says many buy-side firms choose to outsource parts of their businesses that hold little or no competitive advantage if managed internally.

“Buy-side firms are looking to outsource any items that are not competitive or differential to make their front-to-back investment management lifecycle services more efficient and cost-effective, so they’re going to take advantage of that outsourcing where beneficial,” Wolstenholme says.

The typical candidates for outsourcing their operations to third-party vendors are small- to medium-sized asset managers, with less than $100 billion in AUM, Wolstenholme says, but he adds that larger buy-side firms have also begun to look at hybrid outsourcing models.

“It used to only be the lower AUMs that would want to outsource, but that keeps creeping up because of the appeal of hybrid models. Investment managers are starting to think like the sell side and ask, ‘Why should I be a tech firm?’” Wolstenholme says.

In pivoting to managed services, SimCorp joins other large firms that already compete in this space, including State Street, Northern Trust, BNP Paribas, and SS&C Technologies. In March, Amundi announced its new business line for front-to-back-office solutions, alongside outsourcing trading.

Wolstenholme says buy-side firms want to outsource these functions because it gives them the flexibility to differentiate their asset coverage and suite of investment products.

“Asset managers will be able to move into new investment or asset classes quickly because they can outsource that infrastructure. They can move into a new instrument class, or a new investment strategy and utilize hybrid models,” he says.

Rollout

In early October, SimCorp began an outreach program to inform existing clients it would be rolling out the IAaaS services. The firm is in active conversations with several clients to pilot the service and expects to go live by mid-2022. 

During the summer, SimCorp also started building out the managed services team across Emea and North America. To date, SimCorp has filled 15 roles, half of which are accountants.

As part of the IAaaS service, the SimCorp accountants will inform clients’ legal teams when changes are made to global accounting standards and rules, explain what the updates mean, and advise them on what to do.

SimCorp is also hiring operational experts, such as those responsible for data reconciliation and transaction processing, on to the IAaaS team. The company intends to hire more staff as it builds out the managed services client base. Its target is to onboard at least 10 clients and grow the IAaaS unit to a 100-person team.

“We will hire more as we go. We benchmarked [the SimCorp managed service operating model] compared to market standards, looking at how many accountants we would need. We believe that from the benchmarking, we can be 50% more efficient than the market average, also by creating scale and having that highly automated platform,” Mueller says.

In-house buy-side analysts, portfolio managers, or risk management teams will be able to interact with IAaaS data via a self-service cloud-native portal for evaluating their positions for scenario analysis and managing risk.

SimCorp plans to extend its outsourcing services to other back-office operations like performance measurement and eventually offer real-time accounting reconciliations.

“Once you’ve got the positions in the accounting, you can calculate performance on top of that and you can do even more real-time servicing for an investment book of record instead of only the accounting book of record. In an accounting book of record, you have transactions that are T+1 or T+2, so one- or two-day-old transactions. You could offer services where it gives you correct intraday transactions,” Mueller says.

Beyond the back office, the vendor is will also look at providing front-office analytics for portfolio management, including alternative investments. While the firm has no current plans to provide outsourced trading, Mueller says it can work with partners such as State Street to support traders or portfolio management.

SimCorp currently partners with several custodians, including State Street, JP Morgan, Bank of New York Mellon, Societe Generale, and Deutsche Bank in Singapore, which provide mutual clients with additional services like fund accounting, custody, and settlement. SimCorp will soon announce integrations with other global custodians to provide buy-side firms with more optionality on the bank they wish to use. 

“Buy-side firms want that variety so they don’t get locked into one custodian. If a custodian messes up on clearing and settlement, allocation, or any services, you have the choice to allocate between custodians,” Wolstenholme says.