Capital Markets Day

2011

Target operating models of the buy-side industry

Marc Schröter, SVP Strategic Research Department

Australia market structure - example

2

Custody

Institutions Govt Unions

etc.

HNWI Retail

Third Party Administration

Retail Wholesale

HoldingsBank accounts

FX

Subscriptions / redemptionsUnit registry

DistributionsTax

Unit pricingInvestment accounting & tax

Post trade compliancePerformance

Pro

cessin

gM

an

ufa

ctu

rin

gD

istr

ibu

tio

nC

lien

ts

Boutiques

Fund Manager1 Fund Manager2

Hedge Fund

Fund of Fund Manager

Aus EquitiesProperty

Insurance

Super Fund

Wealth

Management

Investor Directed Portfolio Services (IDPS)

IFA2IndependentFinancial Advisor1

Manager ofManager

Platform

DistributionsTax

Purchases/ redemption

Margin Lending

Shares Other investments

IFA3

Model portfolio re-balancingRange of advice/ productsTax/ reporting

AssetConsultants

Managed Funds, Super, Shares, SMAs

Insurance

General/ Life

Buy-side Investment Management – generalised view

3

ALM &

Investment

Planning

Asset

management

(investment)

Operations &

processing

Core

Pro

ce

ss

Segm

ent Investors

(Pension, Insurance,

Sovereign Wealth, Retail, HNWI)

Asset Managers

(institutional, retail funds, hedge

funds...)

Administrators

(third party administrators,

custodians, fund administrators)

Investment mandate

Products & services

Service level

agreement

SimCorp Dimension

Investment management value chain

Front office investments

•Market research & information management

•ALM & investment planning

•Portfolio management decision support

•Pre-trade compliance

•Trade order & execution management

MO investment controlling

•Post-trade compliance

•Performance analytics

•Risk analytics

•Reporting

•Data Management

Middle office investment operations

•Matching & settlement

•Reconciliation

•Position keeping

•Investment accounting

•Corporate actions & income processing

•Cash/currency management

•Securities finance

•Collateral management

Back office administration

•General ledger accounting

•Fund accounting

•Custody

•Transfer agency

4

Target operating models - strategic considerations for business process outsourcing

Motivations

• Cost savings, convert fixed costs to variable costs, correlate revenue and costs

• Focus on core competences

• Scale / time to market

• Competitive advantage

• New regulation and one-time-only events

• New business line

Risks and considerations

• Loss of strategic control

• Vendor risk (single vendor versus multi-vendor, e.g. hedge funds and prime brokers)

• Dependency on vendor

• Minimised focus on IT advances and innovation – flexibility versus standardisation

• Vendor relationship management and responsiveness

• Data access, quality, timeliness, accuracy and security

• Service quality issues

• Irreversibility and flexibility to change model over time

• Penalties difficult to enforce

5

Target operating models – general direction of business process outsourcing

6

ALM

Consolidation, risk, performance, analysis

and reporting

Investment accounting

Investments and risk

management

(Client services)

BO operations

MO analytics and

reporting Core

=

in-h

ouse

Targ

et

Segm

ent

Investors (Pension, Insurance,

Sovereign Wealth, Retail, HNWI)

Asset Managers

(institutional, retail funds, hedge

funds...)

Administrators

(third party administrators,

custodians, fund administrators)

Non c

ore

=

outs

ourc

e

Investments (region,

sector, strategy..)

Operations

Operations

(Client services)

Best-of-breed systems strategy with no data management

7

Duplication of data

Reconciliation

Consistency

Granularity

No consolidated

overview

Multiple ‘versions

of the truth’

Operational systems

Market data

providers

Market data

Security master

data

Counterparty

data

Other external

data

‘Transactional’

3rd parties

Brokers

Custodians

Portfolio

management

Performance

Risk

Asset services

Fund

accounting

Investment

accounting

Client

reporting

DWH

Trading

Trading

Integrated all-in-one system strategy

8

Operational systems

Market data

providers

Market data

Security master

data

Counterparty

data

Other external

data

‘Transactional’

3rd parties

Brokers

Custodians

No data ambiguity

Consolidated

overview

Consistency

Granularity

Port

folio

manag

em

ent

Tra

din

g

Perf

orm

ance

Ris

k

Asset serv

ices

Investm

ent

accounting

Fund a

ccounting

Clie

nt re

port

ing

Common database

Target operating model: outsourced investment operations

9

Operational systems

Market data

providers

Market data

Security master

data

Counterparty

data

Other external

data

‘Transactional’

3rd parties

Brokers

Custodians

Split of master record

Reliance on TPA

• Data quality

• Accessibility

• Granularity

• Consistency

• Consolidation

Loss of control Port

folio

manag

em

ent

Tra

din

g

Perf

orm

ance

Ris

k

DB

TPA

DB

Clie

nt re

port

ing

Fund a

ccounting

Asset serv

ices

DB DB

Architecture with data management

10

BPM

Operational systems Data

ware-

house

BI / Reporting

Master data management

Market data

providers

Market data

Security master

data

Counterparty

data

Other external

data

‘Transactional’

3rd parties

Brokers

Custodians

Po

rtfo

lio

ma

nag

em

en

t

Tra

din

g

Pe

rfo

rma

nce

Ris

k

As

se

t s

erv

ices

Inve

stm

en

t a

cc

ou

nti

ng

Fu

nd

acc

ou

nti

ng

Cli

en

t re

po

rtin

g

Market data Positions and

transactions

Analytics

One set of data shared across systems

Market data acquisition

Data scrubbing to achieve golden record

DWH/marts for easy reporting

Estimated distribution of SimCorp clients

11

21%

48%

24%

7% Distribution of clients

Pension/ Insurance

Asset Management

Administrators

Other

SimCorp clients AuM

System Strategy

Inhouse

operation

Outsourced

operation Total

Integrated 30% 0% 30%

Core + add on 36% 1% 37%

Best of Breed 22% 10% 32%

Total 88% 12% 100%

Target operating model

Asset management

System Strategy

Inhouse

operation

Outsourced

operation Total

Integrated 15% 0% 16%

Core + add on 44% 2% 46%

Best of Breed 22% 16% 38%

Total 81% 19% 100%

Target operating model Pension/Insurance

System Strategy

Inhouse

operation

Outsourced

operation Total

Integrated 65% 0% 65%

Core + add on 20% 0% 20%

Best of Breed 14% 0% 14%

Total 100% 0% 100%

Target operating model

Market estimate

System Strategy

Inhouse

operation

Outsourced

operation Total

Integrated 14% 13% 27%

Core + add on 17% 17% 34%

Best of Breed 20% 19% 39%

Total 51% 49% 100%

Target operating model

Estimated distribution of clients – total market

12

SimCorp clients AuM

System Strategy

Inhouse

operation

Outsourced

operation Total

Integrated 30% 0% 30%

Core + add on 36% 1% 37%

Best of Breed 22% 10% 32%

Total 88% 12% 100%

Target operating model

SimCorp’s offerings and strategies

SimCorp Dimension is an enterprise platform which provides modular and fully

integrated application support for front-to-back processes in leading buy-side

institutions.

13

FO-MO-BO

FO-MO MO-BO

BO / ACC

Strategic focus: Front office

Data management and

reporting

SimCorp Dimension as a

Service (SaaS)

BO / ACC