Don’t despair, Bostonians. Though recent economic pressures have forced such community pillars as Fidelity Investments and State Street Corp. to shed hundreds of jobs, one locally based financial firm is hiring.
In fact, asset-servicing specialist Investors Bank & Trust Co. has been increasing its workforce all along. It can’t by itself dispel the recessionary doldrums -- its 3,000 employees roughly equal the number who recently accepted a State Street severance offer -- but it’s a rare growth story in financial services nonetheless. The 34-year-old Investors Bank has also been consistently profitable, adding to its asset base and boosting its technology budget to keep pace.
That should make Edmund Maroney, the company’s senior vice president and chief information officer, the envy of peers who find themselves under the budgetary gun as never before. But few outsiders hear much about Maroney or the role he plays at a modest-size bank that boasts one of the most competitive global custody operations in the world.
“We’re not flashy rock-star types here,” says Maroney, 46, who has been with the company since 1985 and became head of the now500-employee technology area about three years later. He stresses that Investors is run by a close-knit team -- CEO Kevin Sheehan, president Michael Rogers and Maroney have worked together for most of those years. “We manage collaboratively,” with an emphasis on both quality and efficiency, says Maroney.
The results are plain to see in the reports of the bank’s parent, Investors Financial Services Corp.: In the first six months of 2003, operating income jumped 22 percent, to $41 million, while revenues rose 9 percent, to $234 million.
Maroney notes that technology expenditures are tied to revenues, so he has no problem there: Investors spent $100 million, or 23 percent of revenues, on technology initiatives last year. Adds the CIO, “We continue to selectively hire.”
Investors’ share price, recently around $29, is up about $2 from its January opening, for a market capitalization of $1.9 billion. “Many in the market seem to view [Investors] as a bank, I believe erroneously,” says Bradley Moore, a San Francisco based analyst with Putnam Lovell NBF. “Part of its revenue is spread-based, like a bank, but it’s mainly a technology business serving financial intermediaries,” adds Moore, who rates the stock outperform, with a $35 price target.
Initially a subsidiary of investment manager Eaton Vance Corp., Investors was spun off in a 1995 IPO. Through 2000 it was a niche player, handling bite-size chunks of assets that required novel approaches or close attention, such as Barclays Global Investors’ iShares exchange traded funds, started in 2000.
But in 2001 San Franciscobased BGI decided to outsource most of its back- office operations, steering some $500 billion of assets under administration -- what would have been bite-size to a global custody giant like State Street -- to Investors Bank. Now servicing $879 billion in assets, Investors has about one tenth State Street’s industry-leading custody portfolio, but the Barclays coup provided a foundation to meet further demand for outsourcing support from asset managers.
That long-anticipated outsourcing wave has been slow to materialize, but Maroney is confident that it will come “once pent-up demand and the economy help us out a little bit.”
Maroney, who spent three years as a systems engineer with Electronic Data Systems Corp. before joining Investors Bank, earned degrees in biology -- undergraduate from the University of Notre Dame and graduate from University of California at Los Angeles.
“A lot of the characteristics of the two fields are similar -- in logic and analysis,” says Maroney, who discussed his current outlook in a recent interview with Institutional Investor Assistant Managing Editor Jeffrey Kutler.
Institutional Investor: Would you go so far as to call Investors Bank a technology company?
Maroney: You can look at it either way. This is a software business, an operational-expertise business, a client-services business. Technology enables us to be suc- cessful in achieving business goals.
How much credit should technology take for Investors Bank’s profitability?
Analysts often ask, “How do you compete with Bank of New York or J.P. Morgan Chase or State Street given the dollars they invest in technology?” The answer lies in how we differentiate ourselves: 100 percent of the investment we make is related to financial asset servicing. Our competitors might split their resources among asset servicing, asset management, ATM operations, commercial loan systems and whatever else they have. While we, as a pure play, concentrate our energies, others dilute theirs. Second, we’ve created a single, integrated fund accounting and custody system, which allows for significant processing and development efficiencies, in both up and down markets.
Aren’t you also a buyer of outsourcing?
Yes. We outsource our mainframe processing to EDS and our Web hosting to IBM. We do what we ask our clients to do. By taking advantage of our partners’ scale and research and development investment, we turn fixed costs into variable costs, and that allows us to concentrate on -- and to compete on the basis of -- our core competencies.
Do you also invest internally in R&D?
It falls within the realm of strategy; I don’t have the luxury of having a distinct silo. To me, R&D doesn’t just mean technology. It means evaluating things like offshore development, which is a relatively mature concept but has pros and cons, or open-source systems, which are not ready for prime time. Our software has to be solid; we’re not selling bells and whistles.
So how does outsourcing pay off internally?
We outsource commoditized activities so that we can spend more of our time creating competitive differentiation. That allows us to be in the forefront of developing software for emerging investment vehicles like exchange traded funds, for example, and it positions us for middle-office outsourcing solutions and other innovations.
Have you suffered fewer budget cutbacks than other financial institutions?
No matter what the economic environment may be, there is a constant, unbridgeable gap between what a business needs and what technology can implement. We are fortunate that revenues have been consistently increasing at least 25 percent every year, and we consistently reinvest 18 to 20 percent of these revenues in technology. So we haven’t had to downsize as others have.
What was the impact of the BGI business on the tech organization?
The doubling of transaction volume, with assets increasing $500 billion, put strains on our operations, but we handled it. I like to say we did five years’ worth of work in less than two. But to me, the most rewarding part of the project was that it validated the scalability and flexibility of our architecture. We didn’t just look at this as a tactical, 18-month program to bring BGI’s funds onto our systems; we also looked at this strategically and created a global platform for future growth.
Do you anticipate more large-scale outsourcing deals?
We believe investment management outsourcing is going to take off. We’ve prepared by doing things like standardizing linkages among asset managers, custodians and third-party vendors.
Are you disappointed that outsourcing hasn’t taken off as quickly as you expected it to?
I just think we’re dealing with the marketplace reality of the past year or two. Potential clients have been reluctant to make decisions as they wait out the economic slowdown. Their wait-and-see attitude made them delay what appeared to be an obvious move to shed expenses by outsourcing. As the economy turns, I believe companies will concentrate on their core competencies and will choose to partner with firms like ours to make their middle and back offices more efficient.
