Traditionally, asset owners, allocators, and limited partners had to choose between all-in-one software suites and single-purpose sets of applications for different functional roles, such as portfolio management reporting, risk analytics, and accounting. All too often, users of all-in-one productivity suites find themselves using a fraction of the functionality available in those services and licensing or building their own point-solutions to fill in the gaps. The result: allocators end up grossly overpaying for what effectively serves as a shared contact book. On the other side of the market are dated software solutions that once dominated the landscape as single-purpose research management tools. These applications have historically been siloed, on-premise software solutions.
Recent innovations in cloud applications and the API economy have changed the calculus. Modern cloud platforms feature APIs that enable powerful integration and data-sharing across platforms, often right out of the box. They also make it easier to get implemented than legacy on-premise, or self-hosted, solutions.
Here is a look at some of the benefits of the best-of-breed approach to software platforms for asset allocators:
If you don’t have to implement every team and type of data at once, you can get value from your software investment sooner. As you deploy each application in your mix, you get incremental value along the way rather than working for many months at a time and waiting for a “big bang” payoff at the end of the project (that might never happen).
Leverage specialized expertise
Choosing the best application for each function enables you to leverage the expertise of the vendor. After all, they have a team of specialists dedicated to tackling this one area. All-in-one platforms can be a 4/10 in each area and a 10/10 on none. They are forced to spread their development effort across feature sets. In contrast, each vendor in a best-of-breed mix has product development (and other) resources dedicated to solving a particular problem. So, you get better software and more frequent updates.
The best-of-breed strategy also leverages the expertise of your staff to choose the best tools for their role. Each team or member of your organization is best suited to know what tools will help them better perform their responsibilities. Also, teams are happiest when using tools they’ve selected for themselves, rather than getting stuck with whatever another team (or the boss) chose. Not only that, but they are also more likely to use the software they’ve selected, which increases your return on investment.
You want to look for vendors with robust APIs and a proclivity for integrating with other platforms. Many of today's modern solutions for portfolio management, accounting, analytics, and research have taken the open-API approach. Connecting your various systems intern connects your disparate teams, fostering the same collaboration and data sharing ease many seek in all-in-one platforms, without the headaches those software suites cause. Integrating your tools allows each team to utilize the software best fit for their workflows and only share the data they care about between each system minimizing data clutter and expediting the decision-making process.
It's essential when searching for a new vendor to ask them about their integrations with software you already use, and their plans to integrate with other vendors.
Another advantage of choosing multiple smaller platforms is that it’s easier to switch one service if it isn’t working for a particular function than to substitute out the tools for every team at your organization. Sometimes a software platform doesn’t live up to its billing, and sometimes your needs just change. In any event, it can be an ordeal to switch from an integrated software suite, as what’s inadequate or broken for one team may be working well for another.
Even if every functional team agrees that it’s time to switch, it can be a significant interruption to disrupt every team’s regular operations at once. That’s a disincentive to try something new, and no one wants to be locked into a vendor that isn’t a good fit. There will still be costs to switching from a point solution, but it will likely be far less than it would be for switching from an all-in-one suite.
How to choose your mix
Let your teams evaluate the tools that are best for them - they’re the experts in their roles. Each team can move at their own pace since you don’t have to decide on every application all at once. In fact, it’s probably easier for your organization to digest one new platform at a time. Once you’ve gotten through initial implementation with each vendor, you can layer on additional functionality with additional software tools.