Greenwich Associates teamed with The Asset Managers Forum for a study regarding sell-side operational performance in fixed-income counterparty selection. Released last week, the Greenwich Associates/AMF 2005 Fixed-Income Operational Performance Study shows that about half of U.S. asset managers already take operational capabilities into account when deciding to work with a dealer and almost 60% say back-office criteria is becoming more important to their selection process.
Goldman Sachs, Lehman Brothers and Morgan Stanley were placed among the top-ranked dealers more consistently than other firms. The two most important factors the report found were efficient trade confirmation and efficient trade settlement management. The survey, conducted last summer, asked participants to rank their broker-dealer in terms of service quality and efficiency for back-office functions including: trade confirmation, trade settlement management, the provision of timely data for new issues, knowledge of client accounts, mortgage processing support, commitment to technology and overall client service. Respondents were AMF-member investment management firms that had more than $6 trillion in combined assets under management.
Having confidence that a trade will settle, especially in credit default swaps, is probably why trade confirmation and efficient trade settlement management topped the lists, explained Joe Sack, executive v.p. of the Bond Market Association. “The street is definitely on the move and working earnestly to enhance the confirm process for CDS. A lot has already been done in the last couple of months...As an asset manager you focus on confirms and settlements because the company’s CIO is going to shy away from securities where there is no confidence. [There needs to be] practices where he can be assured the counterparty is in synch and that he knows who the counterparty is and doesn’t have to worry about counterparty risk,” Sack said.
With improved technology, such as TRACE and other products, pricing has become more consistent and dealers are looking at other ways to differentiate themselves. Several asset managers have said they are beginning to meet on a regular basis with their dealers to discuss the level of service they provide. “I think there are a few dealers that recognize they have been lagging so they are taking measures [by] investing in...client service; looking at back-office processing as a way to differentiate services,” said Andy Awad, a fixed-income consultant at Greenwich.