­Schroders’ head of group IT, Matthew Oakeley, talks about the bank’s shift from IT outsourcing to a full back-office revamp. Writer Michelle Price.

When investment management giant Schroders unveiled its plans, at the turn of the century, to outsource the administration of its £75bn ($109.5bn) of UK custody and fund assets to JPMorgan, the lift-out deal, one of the largest of its kind at the time, was widely hailed as a landmark outsourcing arrangement. Five years later, however, it had become evident to all concerned that the arrangement was serving the needs of neither party and in 2005 the firm took the very public step of terminating the entire contract.

By the time that Matthew Oakeley, head of group IT at Schroders, joined the firm nearly three years ago, it was clear the back office needed a revamp. “The Schroders that we found had been trying to outsource its back office for five years. It clearly wasn’t going to work and our view was that Schroders needed a new approach,” says Mr Oakeley.

During the life of the agreement, the back office had suffered from a sustained period of under-investment. This was especially true of the portfolio accounting system which, having been developed in house some 27 years ago, was already nearing the end of its life. When Hewlett Packard announced it was no longer going to support HP3000, the mainframe hardware on which the system ran, the firm had no choice, says Mr Oakeley. “It was a burning platform: it has to be replaced.”

Heart transplant

But this was no simple task. Sitting at the core of the entire back-office environment, the incumbent portfolio accounting system was plumbed into every single peripheral application: ripping it out and replacing it was akin to a heart transplant, made more complex by the firm’s desire to collapse the separate fixed-income platform into the new system. Mr Oakeley and his team drew up a visual plan, dubbed the ‘target operating model’, which offered “a logical view about what an asset management company’s back office operations should look like”. The vast scale of the project immediately became clear: typically, a Schroders IT project would require a staff of four to eight while at its peak, the back-office overhaul would command some 200 people.

Having created the target operating model and recruited the necessary staff, Schroders looked outside the firm for the right software package, selecting SimCorp Dimension in the summer of 2006. The Danish investment management software provider, which upgrades the Dimension system on an annual basis, “easily won the selection process”, says Mr Oakeley. “SimCorp clearly invests quite heavily in the product, while very little investment has gone into most back-office products: why would we rip out one 27-year-old platform to put in something that’s basically somebody else’s 27-year-old platform? Dimension is newer,” he adds.

But Schroders did not want to play it entirely SimCorp’s way. The software company offers a so-called ‘one-stop-shop’ front-to-back office application for investment management firms, which has been the basis for its marked success in the investment management space across Europe. But the all-in-one model did not suit Schroders’ IT strategy, says Mr Oakeley. “We built the target operating model based on the idea that it would survive any acquisition,” he explains.

By implementing a one-stop-shop application encompassing multiple databases, for example, any future acquisitions would become exponentially complex. Rather, Mr Oakeley and his team determined to compartmentalise each function within discrete software systems. “By compartmentalising things, you allow components to be swapped in and out of the architecture much more simply. If you have a single mega-system, then integrating an incoming business is much harder,” he explains.

Intensive preparation

Following intensive planning and development, the team began testing the system in 2007, during which time it replicated every live function in the safe testing environment. The team then went on to migrate to the system in three stages throughout 2008, uploading portfolios to the new system incrementally. “We went live with a small number of equity portfolios, so if the wheels had really come off we probably could have crafted the whole lot by hand,” explains Mr Oakeley. Due to their complexity, the fixed-income portfolios were uploaded afterwards, taking the new systems architecture live, on budget and on time, in ­August 2008.

Having integrated both its equities and fixed-income back-office systems on a single platform, the new Portfolio Book of Record has allowed the firm to gain major efficiencies, including rationalising several thousand portfolio reports down to just 200. Not long implemented, the new system was fully tested during the height of the turmoil in October, when market volatility required Schroders to provide reports on the status of its clients’ investments four times a week.

Moreover, says Mr Oakeley, the benefits to the IT function as a whole can not be underestimated. “Having spent five years outsourcing the back office in a soul-­destroying project that never did anything, to replace it with a monumental win is psychologically very important: the change function and IT function in Schroders would be trusted with anything now, but I am not sure you could say that before the project,” he says.

CAREER HISTORY

2005 Joined Schroders as head of group IT.

1994 Head of investment IT at UBS Global Asset Management.

1989 Graduated from the University of Oxford.

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