Asset managers and other institutional investors are paying more attention to back-office capabilities when selecting dealers for fixed-income trades, according to a new study from Greenwich Associates.

The study, conducted by Greenwich and the Asset Managers Forum, reveals that half of U.S. asset managers say that operational capabilities already play some role in deciding whether to work with a given dealer, and nearly 60% say back-office criteria are becoming more critical in their dealer selection processes.

“In U.S. government bonds price differentials between dealers have largely disappeared, and even in investment-grade credit bonds the transparency created by TRACE has caused prices across different dealers’ trading desks to converge,” explains Greenwich Associates consultant Tim Sangston. “With pricing becoming more consistent, asset managers and other institutional investors are increasingly able to direct business to those dealers that provide value away from the sales desk. In this environment, operational capabilities and other qualitative measures are taking on a much higher profile.”

Specifically, many of the participants noted that, as part of ongoing initiatives to address short-comings in sell-side back-office performance, they were taking steps that could increase the importance of operations in the process. Several participating asset managers say they have begun to meet on a regular basis with their dealers to discuss such topics as level of service, standards, and escalation procedures.

On an internal basis, operations professionals at many of these investment management firms are gathering more frequently to assess and rank the service that they are receiving from their dealers, the research found. The development of dealer scorecards and other internal review procedures is intended to capture operational feedback on individual dealers that can then be fed into the firm-wide dealer review and trade allocation process.

Greenwich Associates and the AMF asked asset managers to rank components of operations in terms of their importance in evaluations of sell-side back-office capabilities. Responses reveal that dealers’ most important operational capabilities include efficient post-execution processes, client service, technology, and commitment to building a strategic partnership with their operations counterparts at asset manager firms.