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KLP first implemented SimCorp Dimension in 1998 in their middle and back offices, while their front office was supported by an in-house built, spreadsheet-based system. The decision to upgrade their front office to a modern and integrated solution was a natural step to automate the front office processes.

As Norway's largest life insurer, the challenges that led to KLP adopting a new front office solution were manifold. Top amongst their needs was to ensure better regulatory compliance, improve integration with various electronic trading platforms, move away from their increasingly fragile in-house built front office solution and finally, integrate their view of data across the organization.

As KLP's Business CIO, Tore Hjorth explains, “we had an inferior system developed in-house not satisfying the increasing needs for flexibility, so our motivation was huge for going all the way with an order execution system in the front office and combining the regulatory requirements of booking all orders, with full audit trail.”

Satisfying regulatory compliance

As we have seen broadly across the investment management industry in the past decade, regulatory requirements on firms continue to grow, and KLP is no exception. As an asset manager and life insurer, KLP faces a host of regulatory requirements at the local, regional and global level.

As the requirements continued piling up, it became clear that improvements had to be made if KLP was to satisfy audit trail and risk and liquidity requirements going forward. In particular, KLP wanted more control over its pre-trade compliance flow to prevent compliance breaches.

KLP also faced demands that all orders should be electronically searchable. Tore Hjorth explains that, “we were in a state where there were missing links between our existing SimCorp Dimension installation and our execution platforms. Data was exported from the trading platforms and imported to SimCorp Dimension. We really wanted to tie it all together in a more integrated manner, and using one system with predefined connections really simplified the integration.”

Integrating electronic trading platforms

As a passive provider focused on index funds, KLP integrates with a host of different electronic trading platforms. With the days of needing to call brokers long gone, better integration and automation to these platforms was a necessity.

To reduce manual processes, ensure a complete track record of orders and transactions, as well as capturing all trade parameters as required in MiFID II, KLP integrated Bloomberg EMSX, Bloomberg TSOX and VCON, TradeWeb, MarketAxess and FXAll as platforms for order routing and execution.

For the equity passive team, SimCorp Dimension is now their main tool, meaning that the portfolio management process has been moved out of Excel and into SimCorp Dimension - a key success criteria for KLP when they set out to upgrade their front office.

While KLP’s internally built front office solution worked, it was technologically fragile. Rather than waiting until something went wrong to take action, KLP proactively realized the need to make a significant upgrade.

KLP needed to reduce their reliance on spreadsheets and implement some more robust processes throughout their front office. The Oracle database and Excel frontend had run its course, and it was now time to find a solution that could support their current and future growth ambitions.

Harald Harlem, Head of Investment Management Services at KLP sums things up nicely, saying that, “in the past we used SimCorp Dimension for tasks within the middle and back office, including post-trade processing, whereas where we recorded the orders in the execution platform was completely independent. This meant that we had multiple spreadsheets tying them all together as the main tool for the portfolio management process. All of that has been moved into SimCorp’s Front Office Suite.”

By making the entire system architecture more robust and boosting the strength of system integration, KLP's IT platform is now gradually becoming more robust and reliable. “Since going live, we still have some technical operational issues, but we are moving in the right direction and we are confident that we will have a much more stable solution going forward,” says Tore Hjorth.

Better and broader data

By integrating SimCorp Dimension across their front, middle and back offices, KLP now has a fully integrated solution. From a data perspective, it means that they can now see everything in one view. Having an investment book of record (IBOR) underpinning the entire system offers huge advantages in terms of having all data in one place, including no longer having to reconcile the data between disparate systems.

Since integrating their platforms, Harald Harlem says that, “data quality has significantly improved and helped streamline a lot of processes.” KLP is now able to “run all main processes, except risk estimation, in SimCorp Dimension.” This is very much related to being able to support asset complexity in a simple way. “We’ve improved our data from quite good, to really good. And in a hugely competitive market, that can make a big difference,” says Harald Harlem.

As a direct result of having a single integrated system, KLP now has more complete data, with less holes. Tore Hjorth observes that, “we see the benefits of having all data in one system, making it possible to book transactions once we receive data from the executing platforms.” The process is now much simpler for the portfolio manager with it now being much easier to see the relevant data, without having to extract it into a separate spreadsheet. That in itself really improves the data quality, because it is more visible.

SimCorp Dimension is now the main tool for decision-making and analysis of the equity investment process, and being able to execute directly from that platform provides great efficiencies into KLP's processes and ensures better data throughout their investment chain.

Going fully integrated

“We already had SimCorp Dimension functioning as our backbone, so the idea of simply extending the functionality across the entire organization and having everything in one system was very attractive,” notes Harald Harlem. KLP’s front office solution now shows them the real-time impact of trades and improves the sharing of data across the organization. Previously, KLP didn’t have a complete overview of open orders, but they have now redesigned the workflow so they are in complete control of all open orders.

KLP's FX team now has a better overview of positions, and this allows them to make better hedges. The requirements to data quality and reconciliation for the data management team has increased sharply which in turn provides the investment organization a better foundation for their investment decisions.

The project – key takeaways

KLP went through the standard system selection process including RFI and proof of concept phase pitting SimCorp against a handful of leading front office providers. Harald Harlem explains that they quickly “realized that SimCorp was the best match. Not only did we have a long-standing relationship with SimCorp, which includes us investing into training of our employees in SimCorp Dimension, but we also saw a commitment from SimCorp to support and adapt to our business that we didn’t see from the other vendors. That was important for us. Adding the front office solution was a natural next step.”

Regarding implementation, Tore Hjorth explains, "Before starting the analysis phase of the project, we documented all current front office processes including where to improve. This was useful input for SimCorp when the project started, although the initial time estimate did increase when all details were recognized. The implementation project ran more or less as planned, finishing three weeks after originally planned. Overall, we have been very pleased with the consultants from SimCorp.”

A key learning from this project was the importance of CEO buy-in. KLP Kapitalforvaltning’s CEO, Håvard Gulbrandsen, saw that their processes were not streamlined and really backed the project from get-go. “Having your CEO as a key supporter of the project is really important, especially when it requires such a large investment of time and resources from the company. I think it helped speed up implementation time by a lot,” says Harald Harlem.

As an index manager, KLP decided that it should be the beta team who were the key drivers in this project. By choosing a project manager from that field, they made sure that an end user had close oversight over the project, ensuring that the outcome was aligned with those who would actually use SimCorp’s front office solution. Tore Hjorth notes that, “I really think this added a lot of value to the process, not only ensuring that we got exactly what we wanted out of the system, but also helping SimCorp focus on the areas most relevant to us.”

Conclusion

At the outset, KLP needed to standardize the routing of orders to brokers, reduce the use of front office excel sheets, prepare for MiFID II and EMIR requirements and introduce built-in pre-trade compliance. The majority of these needs where met during the project. Looking to the future Tore Hjorth says that, "we are confident that SimCorp will continue the system improvements both in the front office area and in the middle and back office – supporting KLP's increasing volume and complexity of business."

Quick facts

Name: KLP Kapitalforvaltning AS
Headquarters: Oslo, Norway
Industry: Insurance
Website: www.klp.no

ABOUT KLP

KLP (Kommunal Landspensjonskasse) deliver safe and competitive financial and insurance services to the public sector, enterprises associated with the public sector and their employees. With approx. NOK 550 billion of total assets, the company is Norway's largest life insurer, with more than 600,000 policy holders.

KLP’s investment arm (KLP Kapitalforvaltning AS) is predominantly a passive provider, focused on index funds and 68 employees manage the majority of financial investments on behalf of the group. In addition, the company run multiple mutual funds, accounting for 35 funds today. To think society, environment and responsible investment is part of KLP's daily operation.