Investing in Technology: The Rich Get Richer

Mitch Schulman
June 1, 2011

No matter whether you are a hedge fund, private equity firm or institutional money manager, when it comes to Operational Infrastructure, year after year the same questions continue to arise: Why aren’t we more scalable? How can we improve risk controls? How can we enhance the flexibility, timeliness and accuracy of reporting? The Operational Infrastructure is a necessary evil. While it is a cost of doing business, it is absolutely critical to everyday existence.

Individual firms’ corporate cultures and capabilities dictate the manner in which they deal with the “evil.” A firm’s perspective on technology as an investment rather than an expense is only marginally important in the face of its staff’s project management skills and technology expertise. Without the proper team equipped with intelligence behind the systems, the firm is at a great loss.

An organization that has already built out and invested in a robust process and technology foundation is more able to enhance it. One that has not, however, finds it very difficult to implement changes that are scalable solutions. The game that firms play in terms of Operational Infrastructure, we feel, is very much a cycle of the “rich getting richer and the poor getting poorer.” The firms that have already taken the plunge in generating a productive and efficient base have the advantage in terms of constantly being able to update their systems. Those who have failed to even enter the game lag behind at the gate while their competitors advance swiftly ahead.

Firms’ perspectives on technology as either investments or expenses, or project skills and staff’s technology expertise are the largest determinants. How far ahead or behind the curve they are with their level of automation is a key factor as well.