Order management systems help fund managers place orders on multiple trading venues.

Straightforward enough. Should be easy to order one.

Not exactly. Just about every order management system operates in more than one currency, provides portfolio rebalancing and has compliance with investment guidelines. And each system has to work across a firm's entire flow of work for managing trade orders. Details and differences abound.

A new report issued by Woodbine Associates sheds some light into the criteria fund managers should use when comparing and choosing an order management system. Key features of nine of the most popular are compared. These are systems developed by Advent Software, Bloomberg, Charles River Development, ConvergEx Group, Fidessa Group, Investment Technology Group, InData, Linedata and SunGard Data Systems.

"Selecting an order management system is critical to the operations of fund managers, so they can't afford to make a mistake," said Matt Samelson, a principal at Woodbine Associates and author of the report. Because workflow and functionality are similar, fund managers will have to use other criteria when making a selection."

First rule of thumb: Fund managers should never select an order management system based on a popularity contest, Samelson said.

Disregard how many other fund managers are using it or whether it has won any industry awards. "Comparing or judging solutions on some fairly random standardized criteria overlooks the fact that those criteria are not wholly representative of market needs, or for that matter, the needs of any particular constituency of trading firms," he said. "Judging solutions is highly fraught with bias."

Second rule of thumb: Never think this will be a short-term marriage. Order management systems are embedded into key portfolio management, trading compliance and middle office workflows. Implementation can take anywhere from three months to three years and are often disruptive to ongoing operations. Bottom line: once put in, such a system is hard to pull out so replacing an OMS is not a prospect to be taken lightly.

"A firm looking to change or acquire an order management solution should look for a vendor much the same way an individual looks for a partner, since the relationship will be long-term and difficult to get out of in the event differences emerge through time or if expectations are not met," Samelson said.

Third rule of thumb: Costs can be deceiving. A system with a high initial cost can be the lowest total cost option, if a firm closely analyzes and tracks the effect on its work flow and processes.

"A so-called high cost solution in absolute terms may be well worth the expenditure if it facilitates day-to-day operations within the acquiring firm," Samelson said.

What's left, when you play the rest of your hand?

The key criteria for the decision-making process are to compare vendor initiatives, support, and hosting options, Woodbine contends.

"How a vendor handles research, development, and their particular projects can be very telling in how they are likely to interface with their client base," Samelson said. "What works for one potential type of client may not work for another."

Because all OMS providers will be adding financial instruments and trading venues to the basic scope of their products for whomever the new customer is, fund managers need to be a lot more discerning to coming up with what differentiates one from the pack.

Example one: Analytics. Fidessa places a good deal of emphasis on developing analytical tools to provide insight into market liquidity and trading cost. Yet another example: SunGard invests heavily on workflow optimization and execution quality through its routing capabilities.

Samelson downplays the merits of adding execution management functions to order management systems to create co-called "order execution management systems" or OEMSs.

"Order and execution management systems address different issues. OMS technology is the hub of the trading workflow and facilitates processes that range from portfolio management to middle office functions," Samelson said. "Execution management systems are focused on the narrow aspect of getting orders to market and working those orders." The best option: to use separate order management and execution management platforms provided by the same vendor.

Selecting a fund manager based on the support it offers is closely intertwined with the hosting services it provides. Those services can include application maintenance; hardware maintenance; systems monitoring and telecommunications. The operator of the OMS can host the applications on servers installed at the client site or a remote location.

"Hosting is increasingly taking on a range of options ranging from simple application management at client locations to full-blown, comprehensive application and hardware support at remote hosting locations," Samelson said. "The growing popularity in cloud computing, advances in technology, buy-side vendor consolidation and a squeeze in technology spending over the past five years have prompted many OMS vendors to develop a range of remotely hosted solution options."

Investment management consultants generally agree with Samelson's list of "non-technical" requirements critical to the decision. But Edward Hawthorne, a partner at global consultancy Capco in New York, also cited two key functionalities: data aggregation and geographic reach-as significant.

"Larger fund managers may want to consolidate all of their asset classes and geographic regions into a single OMS so the strength of the OMS across different financial instruments, such as mortgage and asset-backed securities and derivatives, and their ability to consolidate orders from multiple locations could play a role in the selection process," Hawthorne said.

Finding the perfect partner is even harder than coming up with a short list of candidates. The solution: cohabitation of sorts before the actual partnership is signed. Do a test, on your turf of how the system works with your existing processes.

"The secret to a successful choice is spending lots of time with the vendor and running a proof of concept of how its system works with examples of the firm's actual data and workflow to see just how it will perform," Hawthorne said. "It's also important to see how well the fund manager's organization operates with the OMS vendor in finding answers to any questions about the system and working through any gaps that might be uncovered."

Last but not least: It's important to have the right decision-makers involved, at the start and at the end of the selection process. This should be a collaborative effort among the investment management, trading, technology and compliance units which will end up using the system. However, the buck would ideally stop with the chief investment officer whose group has the greatest vested interest.



Unique Selling Points of OMS Platforms

Advent: Appeals to midsized asset management firms. Originates in accounting systems and interfaces with risk and accounting systems.

Bloomberg: Usability "out of the box." No required hardware, no client maintenance and no complicated upgrades. Offered as an online service.

Charles River Development: High degree of flexibility to view information, aggregate data and slice and dice portfolios and accounts.

ConvergEx Eze Castle: Appeals to larger asset managers. Strong customer support.

Fidessa: Appeals to larger asset managers or hedge funds. Comprehensive focus on market analytics, connectivity and decision support.

Investment Technology Group Macgregor XIP: Integrates the skills of traders, analysts and trade-related research personnel on the staff of agency broker ITG.

InData: Small can be beautiful. InData stays close to the "grass roots" of the process, focusing on each step. Provides pre- and post-trade compliance (in real time) and detailed audit trail.

Linedata: Dedication to easy installation and expandability. SunGard: Appeals to large asset managers. Its professionals collectively possess some of the strongest business knowledge to be found among vendors.

Source: Woodbine Associates

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.