IBOR and Core Competencies: A Historic Perspective

Thinking back to the 70s and 80s might have you reminiscing about the release of Star Wars, the death of disco, or the establishment of the brand new Cable News Network, CNN. Those who are veteran to the investment management industry may also be reminded of how third-party fund accountants and transfer agents sprang up to meet the needs that arose from the mutual fund boom experienced at the time. Despite risk-sensitive executives being reluctant to relinquish control of data and oversight of their operations, a realization that the operational requirements for transfer agent and fund accounting were taking away from their ability to concentrate on managing money led to the gradual support of third-party players. The growth in available third-party providers also provided mutual fund executives with more options.

This reminds me of what is happening today with the emphasis on IBOR and the effort required to support it. IBOR – Investment Book of Record – is increasingly becoming a necessary component of successful investment management firms’ operations. As a result, senior financial executives are taking a hard look at cost, efficiency and risk, seeking to better align costs with success and improve ROI through an exchange of variable expense for SG&A.

Perhaps due to the benefit of learning from history, financial executives are viewing the challenge of IBOR support through the lens of non-core vs. core activities. Executives are seeking a single accounting engine/IBOR platform to support all business lines, thereby creating optimal efficiency, data integrity, and risk mitigation -- all while seeking to implement a solution with minimal business interruption. However, concerns about potential solutions rightly exist at the firm-level regarding both cultural fit and a client-centric view of the investment manager’s roles and responsibilities. Said another way, the answer to “what is non-core?” is partly dependent on a firm’s culture and their client expectations, meaning that one firm’s third-party support needs are not the same for all firms. This presents a strong argument for flexible outsourcing so that each investment manager is able to right-source a solution to fit their need.