Modernised operations give buy-side firms an edge | Gresham

The effects of market volatility, high-interest rates, and fee compression are affecting the asset management industry in immeasurable ways.

Operational resilience, digital transformation, and data quality and integrity are more important than ever in this environment – especially as firms face increased regulatory scrutiny. The daily risk of loss events and service failures and their downstream impacts is one asset managers can no longer afford to take. Infrastructure complexity, inefficient post-trade operations, and poor data quality make their businesses more expensive to run.

However, it’s never too late to take steps to improve the situation and ultimately deliver greater value to clients and investors while creating a better business overall.

Here are four ways to ensure the right data gets to the right places, to simplify reconciliation and operations workflows, and finally remove limits on connectivity, growth, and scale.

1. Data Collection and Aggregation

Manually collecting and aggregating data is inefficient, slow, and wrought with errors – especially when dealing in esoteric investment products such as OTC derivatives and bank debt. With volatility comes more volume and velocity. In addition, staff burnout and turnover are real, ongoing problems that are not likely to disappear any time soon.

Every firm’s operations leaders must ask themselves if managing this intensive process in-house is really worth it when staff could be focusing on more strategic or value-add work. Outsourcing data collection and aggregation can help firms optimise existing resources and acquire richer, higher-quality data for reconciliation, finance, fee billing, and other purposes, while maintaining full data control and ownership.

2. Automated reconciliation

The processing infrastructure for even a single financial product involves multiple layers of legacy technology and disconnected data and processes. Any part of a reconciliation process that is still tracked or managed in spreadsheets – even with the use of automated solutions – spells trouble ahead.

A modern platform should accelerate investigations and expedite exception management by integrating positions, transactions, and cash processing with collateral and margin, failed trades, securities lending, pending trades, and corporate actions – all within one workflow.

Another key thing to look for? A provider with decades of experience helping asset managers, hedge funds, and fund administrators solve complex data, reconciliation, and fee billing challenges.

3. Cloud Technology

Cloud-based solutions purposefully, efficiently, and cost-effectively enable organisations to scale up and down with demand and inexpensively provide the storage and processing power they need on a global scale. Cloud solutions are proven to deliver lower total cost of ownership, time savings, and effortless scalability and accessibility.

Among asset managers using cloud solutions, 63% report improved operating efficiencies, making it the most commonly-cited benefit of the cloud ahead of more flexible business models (58%), and the ability to run as an agile business and respond to changing events (57%), according to a 2021 Accenture report.

4.  Managed Services

Asset managers must always be empowered to scale without having to hire more staff to handle increased workloads – which is unsustainable due to the expense and disruption. Flexible managed service offerings are quickly evolving to take the pressure off reconciliation and operations teams. They are becoming hugely important in the era of talent shortages, as asset managers struggle to find and keep domain expertise in-house.

Automating and outsourcing key parts of the reconciliation process can reduce a firm’s need to hire staff by as much as 50% or more. One global asset manager, who uses our reconciliation managed service, grew from $3 billion AUM in 2013 to $107 billion in AUM at the end of 2021 – without adding another team member and while simultaneously reducing reconciliation time from 70 hours a week down to 30.

Conclusion

A relentless increase in data complexity, volume, and velocity exposes the limitations of legacy systems and manual or fragmented processes. Buy-side firms need to be able to solve complex reconciliation challenges at scale and simplify regulatory processing.

A smart man once said, "The measure of success is not whether you have a tough problem to deal with, but whether it is the same problem you had last year."

If an asset manager’s data, operations, and technology challenges are not solved now, then when?

Gresham will be at TSAM London on 16th June 2022. Book an on-site meeting to learn more about how to get a better handle on your data, reconciliation, and fee billing operations.