Enabling growth through best-practice IT:

a North American example in a global context

In today's dynamic post-crisis financial environment, as fast-paced change spawns both fresh opportunities and challenges, investment management companies need innovative approaches for transforming growth strategies into reality. Taking a different approach can unleash the power of creatively leveraging new technologies.

By Merele A. May

With its corporate headquarters located at 4500 main street, Kansas City, Missouri, American Century investments prides itself in being more ‘main street’ than ‘Wall street’. As a premier investment manager with an expanding range of financial products and services for institutions, investment professionals and individuals, it has been a fixture of the US investment management scene since 1958 when it was founded by James E. Stowers, Jr. with $107,000 in capital and only 24 investors. from these modest beginnings, American Century investments has grown to become one of the top asset management firms in the USA, managing approximately $90 billion in assets for individual and institutional investors and employing more than 1,300 persons.

Since American Century investments was founded, the company has grown to become an experienced investment manager offering its clients a broad array of investment products across a variety of investment disciplines. One central belief, shared by every person at American Century investments, guides the work ethic: the company succeeds when its investors succeed.

The company’s management teams are guided by well defined, repeatable investment processes and are dedicated to fully invested, active management approaches. Offered is a comprehensiverange of investment disciplines for clients,including:

• US growth equity;
• US value equity;
• Fixed Income;
• Quantitative Equity;
• Global and Non-US equity;
• Asset Allocation.

In terms of corporate organisation, American Century Investments is organised around five performance groups – Client, investment, marketing, operating and people. This structure ensures alignment, accountability and allocation of resources based on company priorities. The Client performance group unifies and integrates all of the company sales operations. its areas include: institutional sales; intermediary sales; and Global and Non-US Distribution.

Investment Performance oversees the creation and management of investment strategies for the company by striving to produce outstanding investment results and innovative products for clients and investors. The investment management activities are divided as follows: American Century Research Center; Asset Allocation, Fixed Income, Global Trading; International Equity; Investment Business Management; Portfolio Advisory Group; Quantitative Equity; US Growth Equity and US Value Equity. Combined in the Marketing Performance group are all corporate, product and channel marketing and related functions to create a client driven marketing organisation. The teams here include: Brand and Advertising; Corporate Communications; Direct Sales & Service; Marketing Communication; Corporate Strategy; Product management; Client marketing; Creative Services; Public Relations and Acquisitions.

The operating performance group consists of departments that provide strategic services to the company and its clients. operating performance group areas are: Client operations; finance; information Technology; investment operations; internal Audit; facilities and legal & Compliance.

The People Performance Group combines functions that help leverage people resources in support of business strategy and values based culture. This area includes: Compensation & Benefits; Talent Management; Staffing and Community Investments.

GROWTH BEYOND THE US

But American Century has not confined its growth to the us market alone. As part of its objective to become a global provider of investment management products and services, the company has expanded its Non-US presence to include offices in Hong Kong and London. This complements its US activities, which in addition to its Kansas City corporate headquarters also include offices in Mountain View, California and New York.

From its Asia Pacific sales office, opened in Hong Kong in May 2009, American Century is extending its investment management capabilities to financial intermediaries and institutional investors across Asia Pacific, including Australia and New Zealand. The primary objective is to continue to deliver superior investment performance with a focus on risk management and quality security selection.

The development into the Asia Pacific region followed on from the successful opening of a London office in 2008. Increasingly, non-US investors are recognising the applicability of American Century’s investment approach to their portfolios, which has created a tremendous opportunity for expansion. The Hong Kong opening complements the company’s commitment to execute a high-quality proactive strategy to serve its expanding client base of non-US investors more effectively and to grow its international distribution.

The London office is initially focusing on delivering the company’s equity growth strategies across global growth and US growth equity sectors. Whereas all asset management responsibilities continue to be managed in the USA, the London sales team targets financial intermediaries and institutional investors across the United Kingdom, Europe and the Middle East.

Also in 2009, American Century received regulatory approval in Luxembourg and the United Kingdom to sell open-ended mutual funds throughout Western Europe. In addition, it signed a strategic agreement with Zurich Financial Services Group to bring American Century’s mutual funds to Australia. The strategic reasoning behind all these moves is that greater exposure to international markets will help the company to diversify and avoid unnecessary volatility in assets under management.

CALIBRATING TO THE HIGHEST STANDARDS

But the type of growth that American Century is pursuing also brings challenges in addition to creating opportunities. Internationally, it is really focused on the institutional investor. In the belief that the institutional investor is the most demanding, American Century is trying to calibrate the company to the highest standards in everything it does.

While the firm already has attracted billions of dollars from non-US clients, it realises the institutional sales cycle is normally slow and that achieving success requires patience and a long-term perspective.

While American Century offers a range of investment strategies, non-US clients are most interested in the firm’s unique philosophy of growth investing, which is founded on the belief that accelerating growth in earnings and revenues is more highly correlated to stock price performance than the absolute level of growth. This philosophy often directs the company to research different companies than other growth managers, as American Century does not require an absolute threshold of earnings or revenue growth. This enables its investment managers to take advantage of both the normal price appreciation that results from a company’s earning growth, plus the market’s re-rating of a company’s price-to-earnings multiple.

In this context of calibration and correlation, the Investment Operations business unit of American Century plays a pivotal role in this area. With a staff of just 45 persons, which is small by relative standards, the unit’s principal activities entail mutual fund accounting for the company’s range of retail funds, which include overseeing the mutual fund accounting that has been outsourced to JP Morgan; assuming tax-related responsibilities for the mutual fund side of the business; mutual fund reporting and the actual accounting for institutional products. In the last instance, American Century deploys the integrated investment management system embodied in SimCorp Dimension.

The business unit also has clearly delineated data management responsibilities. These include: setting up the security attributes for all portfolios and instrument types used by the company’s portfolio managers; ensuring that trades settle; reconciling with front-office systems to make sure positions and cash are tied out and aligned; and investment reporting (i.e. portfolio characteristics, performance, holdings).

As part of its role in helping to fulfil the company’s growth objectives, the primary goal of the Investment Operations business unit is to act as an authoritative source of data, ensuring that data is accurate, preventing errors in front-to-back office operations and providing full support to the investment management teams. This entails providing them with cash information and accurate and timely data as and when it is needed.

There is a major responsibility involved in providing sales channels with the right data they need to service and maintain existing American Century clients or to go out and acquire new clients. This has become all the more apparent in the present financial environment where a harsher business climate has generated reductions in staffing levels and other cost efficiencies.

GEARING UP FOR GROWTH

With a growth strategy in place that demanded that international expansion play an integral part in meeting the company’s business objectives, the time had come to evaluate the environment for enabling and supporting that growth. The main criteria were as follows:

• support international expansion (i.e. via Hong Kong and London);
• remove the risk of bottlenecks in the introduction of new institutional products and services;
• expedite time-to-market for the addition of new financial instruments;
• aim to become more self-reliant and not always be overly dependent on IT for changes that needed to be made to the system;
• maintain data accuracy to mitigate operational risk of using inaccurate data in the back office.

 
Opening new offices in London and Hong Kong with a view to moving more into the institutional space meant that the client portfolios under management would be faced with other reporting requirements, such as being denominated in currencies other than the US dollar. Additionally, the ability was required to scale the business without increasing the headcount or overloading the existing infrastructure. The company’s accounting system was built for precision and accuracy, and from an accounting perspective, American Century was comfortable that it could deliver the right data to its users.

But then the question was how best could it incorporate the new reporting requirements within the existing accounting infrastructure? How could Investment Operations ramp up to support the expansion of the company’s institutional and international business activities? With the old system, the time-to-market to add new products or instruments was not as quick as it could be. Because of the language of the current proprietary system, code changes would have to be made and tested to accommodate new holdings, new products, new instruments, etc. The old infrastructure was based on a sturdy mainframe COBOL system and it had served its purpose well over the years.

American Century then started taking a look at all its internal systems. It enjoyed a reputation of being known in the industry for building its own high-quality in-house systems. As the markets changed and with the arrival of new leadership within the company, it was decided to broaden horizons and start examining potential partners in different areas that would make sense for the business. In the spotlight were scalability and best of breed in the market to maintain data accuracy, to scale, to add new products in a timely fashion in such a way that mitigated the operational risk associated with supporting the business.

CHOOSING A FULLY INTEGRATED AND FLEXIBLE IT PLATFORM

American Century went live with SimCorp Dimension in May 2010, deploying modules covering back-office accounting, performance, and certain aspects of reconciliation. Taking part in the selection process at American Century was the Senior Vice President of Investment Operations, Vice President of Investment Operations and Assistant Treasurer, SVP and Chief Technology Officer, the respective Vice Presidents of Application Development and Institutional Client Strategy, as well as IT and business project managers.

Among the functionalities that initially stood out was a greater ease of use by accountants who report that it is now much easier to investigate and find the information they need. There is no longer any need for SQL queries to obtain the data required.

The business unit found itself in a position where only certain individuals knew how to run the correct SQL queries to obtain the data required from the old system. But with staffing reductions, this became a challenge, with the burden of responsibility resting with just one to two persons.

With a fully integrated and flexible system in place, following the initial training it is now much easier for the entire operations and institutional team to obtain the data required without encumbering one or two persons to run SQL queries on their behalf. It is now much easier for the average user to work independently and be more productive. In addition, team members no longer need to be physically in the office to price and portfolios can be calculated daily on an automated basis.

Another important factor is that before moving to a new system, American Century was a lot more reliant on IT to make changes that were required in relation to the old system. While IT is still needed to undertake certain responsibilities like transport data, there is a great deal more that can be done now without having to join the queue.

ENABLING GROWTH THROUGH BEST PRACTICE

Of immediate advantage in terms of enabling growth is the value added that use of a fully integrated and scalable system brings to help make American Century’s institutional and international expansion succeed. Its sales force will be the ultimate beneficiary. Of paramount importance is the need to be able to account for whatever new business they bring in and report it accurately.

As the business is ramped up and new clients brought in, the lead-time to launch new products will be reduced considerably. The sales force can now assure new clients that they have the necessary backup and support to take them on with a business system in place that provides a 360-degree view of what is going on in investment operations.

The sales team can also reassure clients that they benefit from a personalised service with customised reporting that is attuned to and aligned with their requirements. The idea is to be more flexible and agile in responding to client requests. With a new system based on a highly configurable and fully integrated modular solution as an important contributing factor in its IT infrastructure, American Century is in more of a position to tailor its services to a client’s needs.

One example of value-added customised reporting is the use of multi-currencies. With the old system, the Investment Operations business unit was not in a position to account for currencies denominated other than in the US dollar. Operating in a multi-currency accounting mode was a benefit that use of a configurable and scalable system immediately brought to the table. Whereas previously there were challenges in providing clients with the type of currency reporting they wanted, with use of the new system this is now possible.

Enabling growth is not only an external function. All companies have their ‘internal customers and stakeholders’ to consider as well. In the case of American

Century’s Investment Operations business unit, it was now in a position to tell its ‘internal customers’ that it did not simply go out and initiate the new systems project for use in operations alone. This was more about the sales force expressing a desire for the business unit to improve its client reporting capabilities, as well as its ability to expedite support for new products and new services.

The unit also internally referenced the project as an accounting and reporting project. Along with investment operations, the institutional sales group is a co-owner of the project.

COST EFFICIENCIES AND SYNERGIES

Reducing costs and creating synergies were also important considerations in the choice of a modular solution. When the old system was examined to ascertain precisely which processes and applications were slow or deficient, it was discovered that in the area of derivatives, whether it was swaps or another instrument, American Century was not as automated as it wished to be. So when investment managers now bring in a new product, a flexible and scalable system allows American Century to account for it without having to interrupt proceedings and get IT involved in writing and testing new codes. This means that the company is now in a much better position for quick turnarounds to support new products as and when they are introduced. Also, IT resources can be utilised by other parts of the business in support of the firm’s growth.

In order to reconcile cash and positions every day without adding staff , an efficient system is required so that accountants have time to reconcile cash, holdings and the like in order to avoid putting trading managers in the uncomfortable position where they are trading on bad positions, bad cash, etc.

The use and application of up-to-date and accurate data go a long way towards mitigating operational risk. Having a system where the quality of data is never subject to question and which can be easily navigated, researched and relied upon instils confidence, creates peace of mind and helps the entire investment process to be more efficient.

When the Investment Operations business unit ran a five-year forecast on the likely return of investment engendered in the use of the new system, the numbers turned out to make sense. Concluded was a break-even point after five years; but perhaps more importantly the numbers indicated that its use would put American Century in a position to grow.

The number of system end-users at American Century currently runs to 25, split among accounting, data management, custody, institutional sales and information technology. American Century sees a potential in expanding the use of such solutions within the company to embrace the London and Hong Kong offices.

Merele A. May is Senior Vice President of Investment Operations at American Century Investments. He leads a department that has responsibility for mutual fund accounting, institutional accounting, investment reporting, financial reporting, data management and custody operations. He is a member of the company’s senior leadership team and has served as Controller responsible for all aspects of accounting related to 1940 Act mutual funds. Prior to joining American Century in 1987, he was an Audit Senior with Arthur Young & Co., working extensively with mutual fund, banking, and government clients. He earned his Bachelor of Science degree in accounting from the University of Missouri, Kansas City.

American Century Investments
American Century investments is a leading privately controlled and independent asset management firm, committed to delivering superior investment performance and building long-term client relationships. Serving investment professionals, institutions, corporations and individual investors, American Century investments offers a variety of actively managed investment disciplines through an array of products including mutual funds, institutional separate accounts, commingled trusts and sub-advisory accounts. Founded in 1958 and based in Kansas City, Missouri, the company manages approximately $90 billion in assets with a workforce of 1,300.