Back office capabilities playing key role in fixed income selection

Back office capabilities playing key role in fixed income selection

Operational performance in the back office is playing a larger role in institutional investors selection of dealers for fixed income trading, according to research conducted by Greenwich Associates on behalf of the Asset Managers Forum.

The Greenwich Associates /AMF 2005 Fixed-Income Operational Performance Study shows that half of US asset managers already say that operational capabilities play some role in deciding whether to work with a given dealer, and nearly 60% say back-office criteria are becoming more critical in their dealer selection processes.

Greenwich Associates consultant Tim Sangston, explains: "With pricing becoming more consistent, asset managers and other institutional investors are increasingly able to direct business to those dealers that provide value away from the sales desk. In this environment, operational capabilities and other qualitative measures are taking on a much higher profile."

Specifically, many of the participants noted that, as part of ongoing initiatives to address short-comings in sell-side back-office performance, they were taking steps that could increase the importance of operations in the process. Several participating asset managers say they have begun to meet on a regular basis with their dealers to discuss such topics as level of service, standards, and escalation procedures.

On an internal basis, operations professionals at many firms are gathering more frequently to assess and rank the service that they are receiving from their dealers. The development of dealer scorecards and other internal review procedures is intended to capture operational feedback on individual dealers that can then be fed into the firm-wide dealer review and trade allocation process.

Respondents to the survey indicate that the most important operational capabilities include efficient post-execution processes, client service, technology, and commitment to building a strategic partnership with their operations counterparts at asset manager firms.

The Asset Managers Forum Chair, Julie Warren of New York Life Investment Management, comments: "While best execution will always be the key driver in counterparty selection, the role of operations in effectively managing post-execution activities will play an increasingly important role."

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