Governance Focus Help American Century
Keep Pace With Business Shifts, Technology Advances
Originally published February 16, 2009
Century Investments has long led the way among buy-side firms on issues
concerning securities trading, investment operations, technology, and
weighed in on market structure and function debates. With risk
management coming to the fore as the most important operational
functions in the wake of the economic crisis that began in 2008,
American Century is now leading in devising how to manage IT and apply
technology resources to managing risk. The firm’s approach includes a
greater emphasis on non-discretionary, or essential, functions, and
managing outsourcing choices for handling assets of about $70 billion
under its management, of which 31 percent are fixed-income, 26 percent
GIT: What are your current technology priorities at American Century?
GN: The number one priority for 2009 is to support the business priorities. We have a number of new product initiatives and things we’re doing in our sales efforts. Likewise, we continue to support the investment management functions in support of our asset managers. The rest of our IT work is geared around efficiency and risk mitigation. We have a number of initiatives there to help us manage IT costs, and shore up risk functions.
It is really important for us to be flexible with the business. We’ve been working in our IT shop for the last three years or so to make the groups that serve the business function flexible. As an example, we had an unplanned initiative in 2007 that we launched in the beginning of 2008. It wasn’t on the books at planning time in 2007. So, our process allowed us to put this new effort ahead of others on the priority list and fund it, without adding to the total. As a result, we put in a major new sales tool for our direct sales organization within about eight weeks. That shows our ability to be flexible and change with the business. The business is changing and the industry is changing, so it’s likely that we will change and shift some of our current priorities.
GIT: How has the IT focus at American Century changed since last September? Which projects have moved to the forefront and what has been de-emphasized or moved down in the order of priorities?
GN: We’ve always talked about our
work in terms of discretionary work and non-discretionary work.
Non-discretionary work is company mandates that support the key company
priorities. Anything concerning compliance is also part of that. Other
projects are discretionary in nature – and typically they are projects
we do for ourselves in the firm. None of the non-discretionary work
changed, but the discretionary work capacity reduced – we actually have
been reducing that over the last year, even before the market events in
September and October 2008. As a result, we honed our governance to let
the business make decisions about which discretionary efforts are the
right ones .
We’re looking closely at anything that we do for ourselves – the more discretionary spending, and making sure the discretionary work we do has a good return.
GIT: What impact does the economic crisis have on the role and importance of a chief technology officer in the investment industry?
GN: The crisis hones those. If you don’t know what you’re managing, if you don’t know your internal customers, who then of course know the external, or if you don’t know what the external customers want and what’s important to the business, then it might be harder to react quickly. The crisis forces you to react very fast to different changes, to change your priorities, to change your focus, to change where you are from one day to the next. As in other leadership positions, it will separate the people who can be flexible from those who can’t.
GIT: What is American Century’s stance on outsourcing investment operations and technology functions?
GN: We always look at service providers or sourcing as an option for anything we do. In January alone, we were completing a conversion of all our investment accounting to one of the large vendors, including portfolio accounting and investment accounting for the ‘40 Act funds. That is more than just sourcing the IT. The accounting itself has moved along with the system side. It was a question of being able to scale and flex quickly. We came from a homegrown system. We were recommending that we not try to enhance it. So we looked at all the options on the table, not just system options. Sourcing is an option that makes sense. Starting at the beginning of 2008 and just finishing now, we outsourced the function of fund accounting and fund administration to JPMorgan Chase for the ‘40 Act funds. The bank already had our custody for ‘40 Act funds.
GIT: What are some of the gaps in external infrastructure and support that need to be bridged?
GN: The thread that I see even for anyone in IT, regardless of industry, is converting or taking advantage of the newer technology, and doing so quickly. That’s everyone’s challenge, balancing that along with the day to day.
GIT: What are some of the technological strengths of American Century and how do they empower your portfolio managers and traders?
GN: We have a no-touch solution for most of our asset managers, money managers and traders. That means they don’t have to worry about getting from one place to another. They have the systems and data there. That allows them to focus on what they do best – making the right decisions for their accounts and portfolios. We’re highly automated. That mitigates risk and reduces cost for our customers. But for the people actually doing the day to day work, the advantage is that they’re not wondering if it will be up today, what to do if they don’t get their data, where their cash is today or where their cash is right now. We do a lot that is real-time.
GIT: Is there something that distinguishes American Century over its peers?
GN: I think we have some of the best product performance – and that’s thanks to our asset managers. I’m not saying that’s because of technology either. If you look at the number of four- and five-star funds we have right now, that doesn’t come without rigorous process and good data. The technological advantage is moving the data at super-fast speeds.
GIT: What’s the promise and potential of cloud computing, or software-as-a-service, in the investment industry?
GN: We use this now pretty successfully and it’s definitely in our future. We are looking to exploit it more, strategically. This makes it possible to have a business application running somewhere else outside your shop, where you may not even know its location. It is offered by another company through the Internet and you have access to it. It runs your data and your customization through the Internet as though it was in your data center. One of our large vendors is moving in that direction, and we’re probably at the head of the line of taking that on. We’re not ready to move yet, but it’s definitely an option in the next few years. We see new vendors making announcements in that space. It is not the silver bullet. Everyone always thinks there is a new technology silver bullet -- it’s not going to solve everyone’s issues or do away with IT. But it is a really attractive offering.
We use cloud computing in sales, servicing and on the portfolio management side for some functions. Looking at this for e-mail is the next thing for us. Some people may already do this but we’re looking at that in the next few years. I don’t think it’s quite there yet. I’m actually surprised that some of the vendors aren’t pushing this more today. But I expect in a couple years that it will be all over the place and a lot of the vendors will have enhanced their capability.
GIT: What are some of the new and noteworthy technologies that you are keeping an eye on? What are some of the new or value-added capabilities that they will make possible?
GN: Besides software as a service, the other thing we are studying and experimenting with is what will happen with desktop in the future. Are we going to virtualize maybe 50-60 percent of the desktops in the future? We have experimented with several technologies there. Or are those functions going to go to software as a service? The future of the handheld device is big, not just for internal use as we’re all experiencing but also for our clients. The future of the end-user-friendly [Apple] Macintosh interface and what that will do to technology is something we have our eye on.
GIT: How would you contrast the business model and challenges facing buy-side institutions today versus five years ago or even three years ago?
GN: This current economic crisis has forced everyone to focus. It’s also changing the landscape because of all the contraction we’re seeing in the financial industry. It’s going to perhaps change the landscape of who does what in our industry. It may change who the asset managers are in the end when all the dust settles. But it is really a question of focusing on the basics.
GIT: What impact does the accelerating pace of change have on technology replacement cycles? When does something become a legacy system?
GN: Day two! Once you put your money down. It’s like a new car, once you drive it off the lot, it’s an old car. That’s absolutely one of the things that we’ve wrestled with in our architecture. Since we’re really integrators in our IT shop, we’ve tried to focus on building services to connect things. We’re attempting to rely on vendors to build things. Where we do have competitive advantage, we build things on our own. But we use these services to glue things together and move data very quickly so that we can stay on top of this. Other than that, you can’t avoid decisions for fear that something better will be available in six months, if you need something now.
GIT: How will replacement cycles be impacted by the current downturn?
GN: Everyone will try to squeeze as much out of the current assets as possible. We’ve always been doing that. We’ve elongated some cycles, but not everything. We haven’t done a lot of leasing historically as a result. We really try to leverage what we’ve bought. In some cases, it could accelerate the replacement cycle. For example, we’re doing a project this year to consolidate all of our voice systems. To be honest, it wasn’t driven by the crisis, it was something we had been looking at, but it’s a significant cost savings for us. Basically we’re investing to save money.
GIT: What is the most valuable insight that you can share based on your experience in the fund management industry?
GN: I have worked across many industries, but certainly for this industry the core components in IT don’t really change. How you do them changes, but the most important thing is the stability of your systems and the confidence people have in your data. The second most important thing is you must deliver for the business. And, the third thing is you must have a point of view, which for us means: Here’s where we’re going from a systems perspective. Here’s the next three years for your part of the business. Here are the things we need to think about, need to be doing, need to be investing in. You have to be solid and know where you’re going.
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