What is driving the change in Portfolio Management Software?

The Portfolio Management Software (PMS) industry literally exploded in the last twenty years following one the most intensive megatrends: Digital Transition.

The need for a solid PMS is clear, looking at the constant growth of AUM (which represents the underlying of the industry):

The leap from Excel to advanced software

At the beginning of this era its easy to find the iconic Excel as a reference point, however the massive inflows of capitals in the financial industry and the consequent development of Wealth Management Companies, Independent Asset Managers, the increasing number of banks, funds,  regulations to respect are calling for the creation of new advanced software capable to manage and comply with all the requests of this sector.

Many companies tried to build their software in house, but the idea turn out to be successful only for some large corporations that had enough resources to invest in the creation and maintaining of their platforms.

The next frontier already in place since at least 10 years is to externalize the service using third part provider that are specialized in the field (this path is now affecting also large corporation).

To explain the transition from Excel to the most advanced PMS, it is fundamental to consider three main aspects:

Scalability: is essential for a business that relies on large data samples that in the Portfolio/Wealth Management Industry correspond to AUM (Asset Under Management). The AUM evolves over time and hopefully a substantial increase will affect this business also in the future. Excel or ad hoc software built in house proven to be inefficient in managing a considerable expansion.

Integration & Automatization: a complete PMS needs to dialogue with data coming from the banks, price providers and all the others sources external to the company. The scope is to get all the process automized through interfaces that translate all the different languages (every bank, price provider… transfer the data using a different language) in the one of the PMS. Impossible to think for Excel or for internal system that is usually made by infinite lines of coding to be modify manually for every new integration.

Reporting: is the output of the PMS, it embodies all the analysis and the recording of data made through the software. The major requests rely on the possibility to consolidate portfolio from different banks, to be complaint with the regulator, to show in the most precise way the performance contribution/ attribution (especially for funds manager).

Off-the-shelf vs. customized

To fulfil these three aspects nowadays the market is moving into opposite directions: some providers prefers a standardized approach while the most innovative are looking to a higher level of personalization.

The standardize approach gives to all the clients one platform already fixed where the flexibility is low. This implies that all the modifications, updates… will impact and will run for different clients in the same way. If one hand this method looks convenient on the behalf of PMS company indeed, they will need less developers so less resources (less costs) on the other hand it will penalise client’s need.

The personalized approach instead starts with a common platform that is shaped ad hoc for the needs of each single client. Personalized reporting, integration with different providers assured a unique experience that portfolio manager can offer to his/her clients, keeping continuity and flexibility of the business.  Insa Investment Software, one of the best PMS providers (on the market  for more than 25 years), underlines the benefits of the personalized approach: “To face specific client challenges is essential to create new modules, functionalities that contribute to the improvement of the software itself creating a valuable collaboration between the client and the PMS ”. This methodology allowed Insa to become extremely flexible and to be adopted non only by banks, independent asset managers, but also by insurances companies, industrial companies… which wants to manage their treasuries.

The purpose of the article is to describe at a general level what happened and what is happening in the PMS industry. There are many other themes that are driving the externalization of services like outsourcing of back-office, the needs of ad hoc communication between investment managers and their clients…however today, a good PMS is able to easily solve all these problems.

[1] Efama annual Asset Management Report, 2019

[2] McKinsey State of the European asset management industry: Adapting to a new normal, 2019