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Vidrio Blog

3 min read

Fund Allocator's Solution Series: Custom-built

While there are trillions of dollars in the finance world managed on spreadsheets, there are a select few who choose to take on the task of creating their own custom-built software solution for portfolio management. 

The reasons to do so are the same as any other solution. 

  • Sophisticated investors want a clear view of performance and risk across asset classes. 
  • Robust data and analytics powered by software allow asset allocators to make better investment decisions. 

Additionally, no off the shelf system may suffice for firms with highly differentiated allocation strategies. So electing to build custom solutions for specific functions such as research, risk, or accounting is an option, as is creating a unified system capable of support the entire portfolio management business. The possibilities for configuring a solution are endless. This is clearly not an over-night solution or upgrade. 

Ask yourself:

  • Do you know what you want/need?
  • What resources do you have for development and maintenance?

Perhaps the principals believe that showcasing custom-built solutions to prospective investors enforces the technology advantage the firm possesses and is worth the risks. Arguably, an internally developed solution helps solve problems unique to the firm, and potentially provide the developing firm some business advantage. But maintaining and updating the home-grown system becomes costly and challenging. When firms finish the initial build and then stop developing further, the system begins to deteriorate. Like all other technology systems, portfolio management software requires constant improvement and innovation, which translates into continuous reinvestment costs. Any custom-built solution is a multi-million initial investment and seven-figure ongoing support costs. The base systems, architects, project managers, coders, consultants, vendor components are likely to total to a multiple of vendor-provided options. 

As such, a critical disadvantage to custom-built systems is Key Man Risk, if not Key Team Risk. As a proprietary internal system, any overturn in IT will create a level of friction as new team members are vetted, hired, and then must get familiar with the systems.

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For those that can afford a custom-built software solution, there may still be challenges beyond where to start and what to build. One of the reasons opportunity costs proliferate in single-user systems vs. multi-tenant solutions is because innovation is driven solely by individual demands. There are inefficiencies inherent to the system itself and unexpected changes tied to shifts industry-wide. Multi-tenant systems fielding requests from all users are building applications the individual buyer has yet to consider. As a result, the function may already be available or on the way to being delivered within a multi-tenant system, leaving the custom in-house system behind the development curve.

Expected or not, today's portfolio managers face a plethora of issues. As a Technology Enabled Service company, Vidrio Financial specializes in remedying the situation with multi-asset class portfolio management––one vendor providing the analytics and reporting tools paired with the data services to drive it.

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Discover the range of software and vendor solutions that exist in An Investment Allocator's Guide to Portfolio Management Solutions 2020 Edition. The ebook offers readers an in-depth analysis of the options to consider when spreadsheet systems start to hinder fund management. Discover the Advantages and Disadvantages, understand the variation in Implementation Time, and what Expected Costs are associated with each.

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