In the pursuit of growth
As the dust settles in the wake of the financial crisis, growth has reemerged at the top of the agenda for investment management companies. We spoke to Roman G. Trageiser, Spokesman of the Board of the Managing Directors, Dealis, about the strategic goals the company has set and how a successfully integrated and scalable IT platform is instrumental in enabling growth.
by Michael Metcalfe
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Investment management in Germany is based on a triangular relationship of investor, investment company and custodian (more commonly referred to in Germany as Depotbank) that is unique in its scope. Investment companies serve as suppliers of investment funds and manage fund assets provided by the investors. It is the task of the Depotbank to take care of the custodianship of fund assets, calculate the share price each trading day, as well as to monitor compliance with investment guidelines. In the additional interests of investors, the country’s financial supervisory authority – the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) – serves as the supreme regulating authority, supervising all the parties involved.
The investment company in turn reflects a value chain with links composed of selection, purchase and sale of shares, interest-bearing securities or real estate and extending to regular reporting on activities and fund developments. It is a current trend in Germany that parts of this value chain are increasingly being outsourced to competent, specialised service providers. One prominent example of this is Dealis Fund Operations GmbH, which with around €325bn in assets under management (AUM) in around 2,500 funds is the largest provider of fund accounting and fund administration services in Germany.
Dealis is the joint venture of two of Germany’s foremost investment management companies, Allianz Global Investors and DekaBank. Allianz Global Investors Germany is Germany’s largest investment management company, expanding its market leading position with the acquisition of fellow German investment management company cominvest early in 2009. DekaBank serves as the central investment management company for the German savings banks, federal state banks (Landesbanken) and other networks.
AN AGENDA GEARED TO GROWTH
In the relatively short time since the two investment management companies agreed to pool resources and found Germany’s largest fund administrator in January 2009, Dealis has pursued a busy agenda geared to growth. Important milestones along the way for the joint venture, according to Roman G. Trageiser, include:
• migration of the first of DekaBank and cominvest funds to a common IT platform;
• integration of new employees to bring the current total to around 400;
• creation of a Luxembourg-based subsidiary;
• relocation to a new head office in Frankfurt.
Of these moves, the successful migration of the first DekaBank funds to the integrated SimCorp Dimension platform in July 2009 was one of the most important building blocks for ensuring the growth of the young company. As Mr. Trageiser explains: “Successful use of the uniform system platform engendered in SimCorp Dimension afforded maximum flexibility so that processes can be systematically adjusted to suit our individual client requirements. To ensure operational stability in the best interests of clients, the first days of production using the new system were initially run in parallel with the old system. Fund valuations for the migrated funds are now run only on the new platform. It is foreseen that all DekaBank funds will have been migrated by the end of 2010.”
Moreover, and in parallel, the first cominvest funds were successfully migrated to the SimCorp Dimension platform by mid-2009. This was in the context of Allianz Global Investors’ integration of cominvest, which entailed administration of the German cominvest funds being outsourced to Dealis. As Mr. Trageiser adds: “To migrate the funds of three major investment management companies to a common IT platform was a real ordeal by fire. But we accomplished it thanks to the excellent cooperation of the entire Dealis team. All cominvest funds are scheduled to be migrated by mid-2010.”
Another important landmark was the creation of a Luxembourg-based subsidiary in the form of Dealis Fund Operations erations S.A., which commenced operations in June 2009. Headquartered in Luxembourg City, a total of 47 employees manage the funds of the Luxembourg DekaBank Group in Luxembourg. The migration of these funds has just started.
As of mid-July 2009, staff drawn from various premises in Frankfurt were relocated under the single roof of the Herriot’s office complex in the Frankfurt suburb of Niederrad. In addition to the Frankfurt and Luxembourg offices, Dealis has a presence in Leipzig and Munich. Overall, the joint company is staffed by around 400 employees recruited from the back office units of Allianz Global Investors and DekaBank. For Mr. Trageiser, this marks another milestone: “With the support of our parent companies we have in addition to the daily operations at project level accomplished a great deal in a very short time. With these initial moves, we have laid the foundations for our future development and growth. We must now build on this momentum for the tasks and challenges that lie ahead.”
CREATING THE RIGHT GROWTH FRAMEWORK
Since it was created, Dealis has, as stated before in detail, primarily used the past few months to build the new company in terms of its infrastructure and work processes. With the help of market and competitive analyses, as well as a cost-based price/performance survey currently being undertaken, the basic framework is now being created with which to acquire new business. In Mr. Trageiser’s words: “The increased volatility observed in financial markets makes us very optimistic about the successful exploitation of new business. Precisely because of this volatility, investment managers will be led to increasingly focus on their core competencies and seek out high-performance partners in order to outsource what they regard as non-core activities, such as fund accounting and fund administration.”
As Mr. Trageiser goes on to explain: “Already today Dealis has successfully positioned itself as such a specialised service partner guided by two strategic goals: firstly, to be a stable and reliable partner for our clients; and secondly, to help our clients to be even more successful. We will achieve the first goal through our unique ownership structure: with over 50 years of financial ex¬perience and the industry know-how of two of Germany’s largest investment managers as shareholders, our business model is safeguarded and sustainable. Therefore the foundations are laid to offer our clients particularly stable and industrialised production processes that are state of the art.”
The second and related goal Dealis aspires to achieve is to allow its clients to offload specific working tasks. By outsourcing parts of the value chain that do not belong to core business, such as fund accounting and fund administration, Dealis enables its clients to focus more on their core competencies and excellence in daily business operations. In Mr. Trageiser’s words: “With the help of our high-performance SimCorp Dimension platform we can always ensure that we tailor our services to serving the needs of our clients and at the same time reflect the latest legal requirements as well as financial instruments.”
An essential part of the customised service Dealis provides is the close dialogue and coordination it pursues with its clients. As Mr. Trageiser explains: “To this end, there are service review meetings held regularly with each individual client, as well as advisory meetings scheduled with all clients. For instance, the further development of our platform, i.e. in the form of software patches, is jointly coordinated, planned and budgeted. This coupled with annual release changes puts us in a position to book and administer all the desired financial instruments, e.g. of one of the world’s largest bond managers.”
CHALLENGES FACING THE INDUSTRY TODAY
Nevertheless, and despite the fast-track growth Dealis is intent on pursuing, Mr. Trageiser is quick to admit that there are a number of challenges facing the investment management industry today. These include how best to achieve growth and value-creation in the post-crisis environment, whether it be through economies of scale and a low-cost leadership strategy, product differentiation or growth acceleration. However, some of the challenges, including an increasing flow of regulatory requirements and the greater need for flexibility and scalability with regard to operational platforms, were already in evidence before the crisis broke.
As Mr. Tra
geiser observes: “Even before the financial crisis erupted the German investment management industry was faced with the challenge of implementing as quickly as possible regulatory frameworks that were constantly changing, quite apart from having to deal with product innovation. And this in an environment that for years had been characterised by a steady erosion of margins on the one hand, and on the other, by a labour market that was short on specialist skills (particularly with respect to tax and IFRS know-how).”
In view of the sharp drop in fund volumes as a result of the financial crisis, many investment managers are now confronted with the question of what direction their future business strategy should take. Should they position themselves as a niche player with specialised product knowledge or as a full services provider, capable of plausibly catering for all asset classes and investment styles?
Irrespective of the answer to that quetion, Mr. Trageiser stresses that: “Focusing on the core competency of ‘fund management’ is an essential element in the argument – and hence a preoccupation with the subject of ‘outsourcing’. Only in such a case will most fund managers be in a position to master both the regulatory and legal requirements as well as striving for innovation. For the insourcer, however, this demands a flexible and more or less infinitely scalable platform, as well as the ability to provide clients with resources that are always dedicated to innovation.”
PRECONDITIONS FOR CREATING DEALIS
In the specific case of Allianz Global Investors and DekaBank, both companies had recognised independently of one another that they barely had room for further efficiency improvements in their already highly efficient back office units. Following successful introduction of the SimCorp Dimension platform in 2005, Allianz Global Investors was in the position that only a massive increase in processing volumes, e.g. through a joint venture, would create significant synergies – circumstances that SimCorp Dimension can accommodate if and when the need arises.
Mr. Trageiser goes on to explain: “Simultaneously DekaBank found itself in the situation of having created with Deka Fund Master a specialised and legally independent back office unit as insourcer for the investment management activities of the Deka Group; also within the framework of outsourcing internal controlling, all processing aspects were on the point of being made more transparent and where necessary improved. As the time approached for the maintenance contract with the existing back office system to expire and the decision was made to use SimCorp Dimension as the targeted platform, it became an obvious step for DekaBank to carry out the forthcoming migration with a partner who already had extensive experience with SimCorp Dimension.”
For both companies – Allianz Global Investors and DekaBank – the resulting partnership as reflected in Dealis produced precisely the optimisation possibilities that were sought after: higher processing volumes with the same opportunity of being able to share future IT costs, as well as to enhance intellectual property synergies.
CHOOSING THE RIGHT GROWTH ALTERNATIVE
According to Mr. Trageiser: “Since the main obligation here was that the existing service maintained the same degree of excellence as before, the second course of action was chosen. No external providers would have been able to ensure in such a certain way that, to cite just one example, the highly complex requirements of the IFRS accounting procedures of the Allianz Group as the largest institutional investor in Germany were met in the short term, as well as in the medium and long terms.”
DekaBank meanwhile was faced with the prospect of replacing its existing back office platform. Not only did it wish to migrate with SimCorp Dimension as the most powerful system, it also wanted to preserve the most appropriate parametric setups for its own requirements. And it was precisely these requirements that Allianz Global Investors as its later joint venture partner was able to fulfil in its already established SimCorp Dimension platform.
Furthermore the creation of Dealis placed both joint venture partners in the position of leaving their own mark on the more or less inconclusive discussions concerning the outsourcing trend that have been rumbling on in Germany for years. Adds Mr Trageiser: “Both our shareholders and my fellow management board members and I are firmly convinced that some other German or Luxembourg investment management firms will follow this example and that we will be able to welcome further clients in the near future. And, unlike before our creation, there now exists in the market a service provider in the form of Dealis that can satisfy even the complex needs of large clients.”
A CLEARLY DELINEATED VALUE CHAIN
In its relatively short existence Dealis has already taken a number of IT measures to ensure that its operational platform can support and enable its fast-paced growth strategy. The standard SimCorp Dimension system platform Dealis uses allows it to make processes even more client-oriented and suited to its specialised needs. Thus SimCorp solutions play an integral role in Dealis’s overall business model in terms of correctly aligning IT systems to combine the best features from the perspective of efficiencies and synergies.
In Mr. Trageiser’s words: “We at Dealis are a highly specialised service provider, which very deliberately busies itself with only a single clearly delineated part of the value chain in investment management: providing services in the area of fund accounting and fund administration at home and abroad. This also includes the maintenance of financial assets and other services related to the above activities, with the exception of such transactions that require a licence under the German Banking Act or the Investment Act.”
He continues: “Our work begins pre¬cisely at that point when a transaction that is broker matched and compliance checked is recorded by the middle office of our clients via a data interface with our SimCorp Dimension infrastructure. Our work ends with the transmission of fund-relevant data via an interface from SimCorp Dimension into the reporting systems of our clients. These fund-relevant data include the share price, securities holdings and cash balances, as well as the transactions booked.”
The process is best described with an analogy as used by Mr. Trageiser: “If one compares our work to that of a factory, SimCorp Dimension would be our assembly line. And precisely this production line was selected because, on the one hand, no other system is as scalable and, on the other, as individually adjustable. Another important aspect is sustainability. In our mission statement we stress that we want to be a stable and reliable partner for our clients. Consequently, we are also dependent on a systems supplier that provides us with sufficient certainty to work successfully with it over the long term. Here we feel that with SimCorp we are in very good hands.”
Compared with other investment management systems, Dealis also regards SimCorp Dimension as the most attractive solution offered on the market because it offers comprehensive, guaranteed up-to-date functionality and fully meets its specific demands for flexibility, scalability, usability, customisation, performance and reliability – all in an extremely configurable and fully integrated, modular operational platform. Mr. Trageiser adds: “Dealis is confident that SimCorp Dimension is uniquely capable of supporting our current and future strategic and tactical initiatives and will continuously enable our growth strategies in the years to come.”
IT AS A PLATFORM FOR ENABLING GROWTH
In describing the results Dealis has achieved from using the IT platform with regard to enabling growth, Mr. Trageiser lists as follows:
• flexibility and scalability in seizing growth opportunities;
• integrated services offered to internal and external clients;
• consistently high and reliable service levels;
• measurable productivity gains and cost reductions.
Explains Mr. Trageiser: “When we originally planned the project to migrate DekaBank investment funds, we worked on the premise that the total number of migrant funds would be more limited than in fact turned out to be the case. However, launches of new funds meant that the figure climbed once again. The integration of cominvest into Allianz Global Investors in turn added the German funds of cominvest. All in all, we are migrating a total of approximately twice as many funds on our platform than was previously thought. This is a project that has no equal in its scope – both in terms of the number of funds as well as the classes of recorded securities.”
At the same time Dealis also has to attend to its day-to-day business in the framework of which it administers the funds of Allianz Global Investors with a consistently high degree of service and quality. Taken altogether, Mr. Trageiser estimates that Dealis will administer approximately 2,500 funds on a single SimCorp Dimension platform by year-end.
Migration projects and daily operations are one thing – responding to changing needs is another. Explains Mr. Trageiser: “Almost on a weekly basis we receive from our clients change requests for newly administered instruments, primarily in the area of over-the-counter (OTC) derivatives, as well as newly booked IFRS-holding categories, and the like. And also prevalent here is the expectation that the ‘time-to-market’ for successfully responding to these requirements is in no way worse than before the joint venture was created. And so far we have not run into any systemic bottlenecks. I think that speaks clearly for the performance of our software provider SimCorp, as well as our internal project management expertise.”
In Mr. Trageiser’s view, this profound knowledge is also one of Dealis’s unique features. “No other service provider has such resources in the form of dedicated specialists for financial instruments, accounting according to HGB, IFRS and US GAAP rules, investment tax issues, as well as outsourcing-controlling, IT security – the list could go on and on. I think we can rightly say that our unique expertise makes us the single point of contact for all questions concerning the outsourcing process,” adds Mr. Trageiser.
PLANNING FOR FUTURE CONTINGENCIES
Looking to the future, Mr. Trageiser states that different growth strategies are currently under consideration.
“In all our efforts to attract new clients it is always very important for us that we do not compete with them and that they can maintain their special unique features. This is another reason why we specialise in a particular part of the value chain. For both the institutional and the retail end-investors of our clients, it is totally irrelevant who calculates the share prices of their funds. That the price for this service should tend to be cheaper if far more than 2,500 funds are available – as is the case with us at Dealis – is obvious,” argues Mr. Trageiser.
In his view, even at the pre- and post-trade review of asset limits things looks quite different. “Here there are very significant differences for any investment manager to examine, and that is possibly a unique feature. Exactly the same applies in the execution of commercial transactions in buy-side trading. The executed trade is a unique feature. Equal to the ensuing downstream process is the monitoring of correct business practices. Also for purely organisational reasons, the responsible unit should be in close proximity with the trading unit, as experience shows that too many questions can arise in this area. Also these are good reasons why we do not want to change our business model in that direction,” states Mr. Trageiser.
Briefly expressed, Mr. Trageiser concludes that Dealis’s strategy looks like this: “We do not wish to be recognised by the end-investors of our clients. But at the same time we would like to relieve our clients from an activity for which they can obtain no price increases from their customers and also earn no laurels. With this strategy, we feel we are very well-positioned for growth in the coming years.”
Roman G. Trageiser was appointed Spokesman of the Board of the Managing Directors of Dealis Fund Operations GmbH 1 January 2009. Mr. Trageiser is also the chairman of the administrative board of Dealis’s Luxembourg-based subsidiary Dealis Fund Operations S.A.
Michael Metcalfe is a German-based financial journalist who has worked in the Luxembourg financial sector for more than 15 years.
